Westport Innovations
Annual Report Contents
1 Letter to Shareholders
4 Sustainability Report
9 Management’s Discussion and Analysis
22 Reports
22 Management’s Report to the Shareholders
22 Report of Independent Registered Public Accounting Firm
23 Independent Auditors' Report of Registered Public Accounting Firm
24 Consolidated Financial Statements
24 Balance Sheets
25 Operations
25 Comprehensive Income (Loss)
26 Shareholders’ Equity
27 Cash Flows
28 Notes to Consolidated Financial Statements
45 Shareholder Information
Letter to Shareholders
Letter to Shareholders
To our shareholders,
Through Juniper Engines, we successfully launched a light-
duty industrial engine with Clark Material Handling and
Fiscal 2011 has seen a tremendous shift in the support of natural
expect to launch oilfield products with Cummins Western
gas as a transportation fuel and a resulting market transformation
Canada; since the acquisition of OMVL S.p.A. last July, we
is underway. The reason is simple: oil prices are rising again
have also launched initiatives in the automotive world.
and returning to the levels seen in 2008, just before the global
economic crisis. On the other hand, the supply picture for natural
gas has dramatically improved all over the world. In particular,
key oil-importing countries such as China and the United Stares
are discovering that they have significant domestic natural gas
resources. Production costs even for unconventional gas resources
remain attractive, so long-term price trends are encouraging.
Although we talk about reaching “tipping points” in key markets,
this has only come after years of market development work and
significant financial investment by Westport. We continue to
invest heavily in market development because we believe the
opportunities are compelling and the strategic value of becoming
the leading player in each individual market is so high.
Looking back we can see how far we’ve come:
With our Cummins Westport (CWI) joint venture, we
have established strong customer presence in key mid-
Several years of work on high-horsepower market
development has begun to bear fruit, with a locomotive
proof of concept project underway with CN Rail and Gaz
Metro, and an agreement with Caterpillar to evaluate our
technologies for possible use on their large engines.
Revenue growth from 2008 through 2010 continued to
compound at an annual 29% over the period, despite
the intervening economic crisis and global recession.
For the last ten years, almost all of our revenue has come through
our profitable joint venture, CWI. The joint venture continues to
demonstrate strong bottom line performance as well as product
excellence. We expect CWI to continue to grow well into the future.
This year saw us add several new revenue streams: Westport HD
systems sales, Juniper light-duty products, engineering services
revenue from Volvo, and joint venture income from Weichai
Westport. Over the next few years, each of these new businesses
range markets such as urban transit bus and refuse
has the potential to grow in scope and profit contribution.
trucks. Market penetration is 20%–30% of new vehicles
in theses market segments in the United States and this
figure is growing. CWI has been strongly profitable since
2004, with pre-tax income topping 20% last year.
Our joint venture in China, Weichai Westport, is growing
There’s no doubt that the most exciting development this year
has been the launch of LNG long-haul trucks with Peterbilt and
Kenworth. Based on our experience with over 200 Westport HD-
powered trucks sold to customers at the Ports of LA and Long
Beach, last year we launched a major product update targeting
spectacularly with sales up more than 100% year over year.
long-haul trucking fleets across North America. This coincided
Liquefied natural gas (LNG) trucks are already well
established as a segment and with the successful proof
of concept program delivered 2007–2009 at the Ports
of Los Angeles and Long Beach, regional- and long-haul
trucking fleets can see LNG refuelling in daily use by more
with a major emissions regulation change, so our new product
incorporates state-of-the-art 2010 EPA emissions control
technologies. Although only about 30 of these new trucks were
delivered to customers last year, by the end of the fiscal year
orders for more than 480 new trucks had been announced.
than 1,000 trucks hauling freight to and from the Ports.
New financial solutions from various third party financing
We are now in production with Peterbilt and Kenworth heavy-
duty long-haul trucks incorporating Westport HD-branded
technologies, with orders for over 480 trucks announced
in the last few months; CWI has successfully launched
engines for trucks with Freightliner and several others.
Through alliances with Volvo and Weichai, significant
new products incorporating our technology are
expected to launch over the next 18–24 months.
companies, the availability of long term fuel supply contracts,
plus life-of-truck maintenance and warranty offers from Westport
and our trucking partners, have removed much of the financial
risks and uncertainties of the shift to LNG. This very large
potential market is now open to us and although we continue to
be investing significantly at current volumes, we anticipate this
business will be able to shift into profitable operations based
on anticipated sales volumes. We believe the Heavy-Duty
(HD) business has now demonstrated its potential to become a
significant platform for revenue growth and shareholder value.
Westport Innovations Inc. 2011 Annual Report :: 1
Letter to Shareholders
Letter to Shareholders
Although we're just getting started in this very large market,
Our relationship with Volvo continues to develop and
we're confident that the long-term economic advantages make
strengthen. Westport has opened an office in France near
this energy transition inevitable. In the short term, the pace is
Volvo's operations. We see a lot of enthusiasm in Europe for
going to be determined by our ability to earn the confidence of
LNG as a fuel for trucks due to the high price of diesel fuel, the
fleet operators and to deliver the complete solution they need to
focus on carbon reductions, and the strong interest from the
make such a bold and disruptive jump from conventional fuels.
transportation sector to just find a cheaper source of energy.
So customer support does remain a primary focus for us.
The $8.1 million in service revenue reported for the year ended
We also moved this year to significantly expand our global
March 31, 2011 is based on agreements between Westport
HD presence with new relationships with Volvo and Weichai
and Volvo whereby Westport is reimbursed for engineering and
where we expect important new heavy-duty products entering
related development costs at passage through each successful
the market in 18 to 24 months. In some cases, product
major development gate. But this is going to evolve into a
development expenses are being borne by our joint venture or
product business as well once the commercialization milestones
partners. Recently, we announced new projects to demonstrate
are behind us. We think the global market opportunities
LNG on locomotives with CN Rail and Gaz Metro, and with
for Volvo natural gas vehicles are increasing rapidly, and
Caterpillar, positioning us to potentially enter the market for high-
we have the right product positioned at the right time.
horsepower products incorporating our HD technologies.
Of course, our job in this relationship will be to
Weichai Westport Inc. (WWI), our joint venture with Weichai Power
develop a high degree of satisfaction and confidence
of China, continues to expand its market for natural gas engines
within Volvo and its global vehicle brands.
across China and increase its market share. Progress is being made
on the HD engine development program incorporating Westport’s
high pressure direct injection (HPDI) technology, and is on schedule to
provide China with an advanced natural gas engine. Given the pace in
China, we would expect to see this start in late calendar 2012 to early
calendar 2013, so this is a critical period as we develop this business.
Westport’s acquisition last summer of OMVL S.p.A. of Italy (OMVL)
is emerging as a platform for expansion into the light-duty automotive
and industrial markets. OMVL was formerly our joint venture partner
in Juniper, so we knew them well and integration with the Juniper
team has gone smoothly. Aside from the strong market growth we
are seeing for Juniper, this positions Westport as the only company
As we have reported, the engine development expenses are going
with a technology and product portfolio spanning light, medium, and
to be contained within the joint venture, but Westport is committed
heavy-duty engines running on gaseous fuels such as natural gas and
to develop a specific fuel system and vehicle components and
liquefied petroleum gas (LPG). Our addressable market has increased
recover that investment through component sales after the launch.
substantially and our competitive position has never been stronger.
WWI has seen strong demand for LNG trucks already in China.
Westport’s strategy is to set industry-leading standards for alternative
Seeking better performance on alternative fuels, one of WWI’s
fuel products over the entire global market for transportation
truck original equipment manufacturers (OEM) partners has
products, while broadening and strengthening our existing
established itself as the leader in providing LNG trucks in China
relationships and market coverage. To that effect, the Westport
and is already working with WWI to introduce future HPDI
team has been working with several prospective OEM partners to
products. In addition, there is particular interest in high horsepower
deliver market analyses and business plans, technology and product
trucks used in the resource industries in Western China. This
proof-of-concept work, and to negotiate commercial alliance terms.
continues to be a very fast-growing opportunity. So, already
In addition to our new locations with the OMVL acquisition, we have
many companies building LNG infrastructure in China and many
opened new offices recently in France, Australia, and Detroit, and we
fleets are operating their trucks on LNG from unconventional
continue to grow our capabilities in China, Canada, India, and the U.S.
sources such as landfill gas and coal bed methane.
Looking specifically at our financial results last year, revenue reached
$148.1 million, up 21.7% from fiscal 2010’s $121.7. On a calendar
year basis, since we are changing our reporting period to December
31 next year, our revenue has been $108.2 (calendar 2009) and
$144.4 (calendar 2010). We expect growth over the next few years
to continue to be approximately 30% on a compounded basis.
2 :: Westport Innovations Inc. 2011 Annual Report
Letter to Shareholders
Letter to Shareholders
Net loss for the fiscal year ending March 31, 2011 was
We conclude this letter with some comments on new opportunities
$42.3 million ($1.00 per share) compared to a net loss
beyond our existing portfolio. Of course, we don't yet have
of $34.7 million ($1.02 per share) in fiscal 2010.
the product and market portfolio that completely matches
Our strong balance sheet ($180 million in cash and short-term
assets at the end of the year) allows us to continue to invest with
confidence in market development and new growth opportunities.
We continue to work under partnership and joint venture business
conventional gasoline and diesel markets around the world.
We expect to begin filling in this portfolio with existing and with
new partners. We continue to look at ways we can develop
supply chain efficiencies and lower the overall system cost.
models that allow us to scale market growth very quickly, by
Since our venture into smaller engines with Juniper, the last
utilizing our partners production and distribution assets, with
remaining market we had not developed a commercial alliance
relatively low capital investments. Of course, we believe each
in is high horsepower, which would include things like mining,
of our business units, including joint ventures, will generate
locomotives, shipping, and large industrial applications. Falling
significant and sustainable positive cash flow contributions and
into next fiscal year, we just announced in May an agreement with
strong returns for you, our shareholders, as markets develop.
Caterpillar, Inc. to evaluate direct injection, natural gas fuel system
Cummins Westport Financial Highlights
technologies for possible use on Caterpillar’s high-horsepower
engines. Caterpillar high-horsepower engines are used in a variety
of electric power, industrial, machine, marine and petroleum
CWI’s full year, ending December 31, saw the joint venture with
applications worldwide. The global interest we have seen in these
revenue of $117 million, which represents growth of 15% over
markets show excellent potential for this new collaboration.
calendar 2009. In the four quarters that make up Westport’s fiscal
year ending March 31, 2011, CWI revenue was $111.3 million, staying
flat through this past year of U.S. vehicle credit uncertainty. CWI
operating profit before tax for Westport’s fiscal year was $25.2
million. Westport’s share of this profit was 50% or $12.6 million.
Weichai Westport Financial Highlights
WWI reported revenues of $53.1 million for the nine months
ended March 31, 2011, the first three quarters WWI’s financials
were reported by Westport. For the 2010 calendar year, the joint
venture shipped 3,600 engines, which is up 114% year-over-year. In
Westport’s fourth quarter fiscal 2011, WWI shipped 1,771 engines,
Last year, we said we expected to see fiscal 2011 marked with
evidence of growing market enthusiasm for natural gas as a fuel
for commercial vehicles. With corridor development happening
this year in both Eastern and Western Canada, through Nevada
and Utah, and global interest and collaborative development
increasing, we expect to be very busy in the year ahead. We
look forward to reporting our progress in all markets as we move
forward and strengthen this broad and diverse portfolio.
On behalf of our Board of Directors and management team,
and our employees around the world, we thank you for your
continued support and confidence in our company.
an increase of more than 100% over the same period last year.
Sincerely,
Juniper Engines Financial Highlights
Juniper revenue for the year was $23.7 million, which includes
only 9 months of OMVL revenue after its acquisition on
July 2. As we have said, we are investing in Juniper to explore
several new markets, including automotive opportunities with
a number of global OEMs. We think significant change is
coming in this market, and our experience with direct injection
technologies is an important foundation for this growth.
Westport HD Financial Performance
David R. Demers
Chief Executive Officer
Westport HD is the business unit offering high-performance
Westport HD 15L engines featuring proprietary HPDI technology.
Revenue for this unit for the fiscal year was $5.0 million.
Bill E. Larkin
Chief Financial Officer
Westport Innovations Inc. 2011 Annual Report :: 3
Sustainability Report
Sustainability Report
Setting the Technology Standard
Welcome to Westport’s fourth sustainability report
providing information on our economic, social and
environmental performance impacts. Data from five
GLOBAL REPORTING INITIATIVE
Sustainability Indicator Index
Economic Performance
fiscal years have been included to reflect trends,
EC1 Direct economic value generated and distributed
achievements and areas for improvement.
As a clean-technology company, our approach to sustainability
encompasses more than compliance, risk management and
philanthropy. Our natural gas engines move people and freight
around the world and our corporate impact goes beyond
the immediate communities where we live and work.
Our approach to sustainability has been driven by data
and quantifiable measures but the story behind the
numbers is even more compelling. More comprehensive
discussion will occur on our website, westport.com.
The Importance of the
Global Reporting Initiative
The Global Reporting Initiative (GRI) provides a consistent
means for companies to voluntarily report on the economic,
social and environmental impacts of their business. The GRI’s
72 indicators and associated methodologies enable companies
to facilitate decision-making and improve sustainability
performance based on globally recognized indicators.
Perhaps one of the more significant advantages of the GRI is the
ability to compare Westport’s performance to our OEM partners
and competitors. We work with the largest engine and truck
EC2 Financial implications and risks and opportunities of climate change
Social Performance
(Human Rights, Labour Practices, Societal Impacts, and Product Responsibility)
HR3 Employee training on human rights
LA1 Total workforce by employment type, employment contract, and region
LA3 Benefits provided to full-time, part-time and temporary employees
LA6 Workforce represented in Occupational Health and Safety Committees
LA7 Rates of injury, occupational disease, lost days, and work-related fatalities
SO1 Nature, scope and effectiveness of programs to manage impact on communities
SO2 Percentage and total number of business units analyzed for risks related to corruption
SO3 Percentage of employees trained on anti-corruption policies and procedures
PR1 Life cycle stages: health and safety impacts of products—assessed for improvements
PR2 Total number of incidents of non-compliance with regulations and
voluntary codes concerning health and safety impacts of products
Environmental Performance
EN3 Direct energy consumption by primary energy source
EN4
Indirect energy consumption by primary source
manufacturers in the world and are committed to transparency.
EN5 Energy saved due to conservation and efficiency efforts
This report, prepared in accordance with the GRI Third
Generation Guidelines (G3), discloses data from April 2010 to
March 2011. Historical data from the past four fiscal years have
been included for comparative purposes, where appropriate.
Westport has self-declared this report to correspond to
EN6
Initiatives to provide energy-efficient or renewable based products and reductions
EN7
Initiatives to reduce indirect energy consumption and reductions achieved
EN8 Total water withdrawal by source
EN16 Total direct and indirect greenhouse gas emissions
application Level B in the six-level grid of the GRI G3 guidelines.
EN18 Initiatives to reduce GHG emissions and reductions achieved
Application Level B requires us to disclose our performance on at
least twenty core economic, social and environmental indicators
EN22 Total amount of waste by type and disposal method
The GRI has not verified the contents of this report, nor does it
EN23 Total number and volume of significant spills
take a position on the reliability of information reported herein.
For further information about the GRI, visit globalreporting.org.
We welcome your feedback. Any questions or observations
regarding Westport’s sustainability performance may
be directed to sustainability@westport.com.
4 :: Westport Innovations Inc. 2011 Annual Report
EN28 Value of fines and non-monetary sanctions for environmental non-compliance
legend:
AA1 We report on this indicator
BB2 We partially report on this indicator
Social Performance
Community Impacts
Communities and the sustainability and liveability of specific
locales or areas may be significantly impacted by an organization’s
activities. Westport’s geographic location, with our technical
facilities adjacent to homes, schools and other businesses requires
us to monitor and manage the potentially adverse impacts our
operations might have on our immediate neighbours. Our Facilities
Engineering Group maintains a preventative maintenance schedule
for key equipment to minimize the likelihood of environmental
releases and noise levels in excess of municipal by-laws.
Westport responds to community concerns regarding our
facilities, infrastructure, noise levels and environmental
impacts in a timely manner. No formal community
complaints were received during this reporting period.
Human Rights
As our operations and partnerships expand internationally, Westport is
committed to the respect of all fundamental and universally recognized
human rights based on accepted international laws and practices
such as those set out in the United Nations Universal Declaration
of Human Rights and the International Labour Organization. Our
commitment to value and uphold human rights is stated in our Code
of Conduct that is reviewed annually and signed by all employees.
Anti-Corruption Efforts
All business units are analyzed for risks related to corruption and all
employees are trained in ethics and compliance. Our expectations for
individual integrity and ethical, moral and legal conduct are outlined in
our Code of Conduct. Our Code of Conduct has mandated compliance
with all applicable laws in the jurisdictions where we operate and
has always prohibited the giving or receiving of improper payments
to influence business decisions. We amended our Code of Conduct
in January 2010 to include further guidance on what constitutes
an improper payment and how we interact with public officials.
In addition, Westport maintains a confidential Ethics Hotline to provide
an avenue for employees to raise concerns about corporate conduct.
The policy includes the reassurance that they will be protected from
reprisals or victimization for “whistle blowing” in good faith.
Employee Development
We strive to provide a healthy work environment characterized
by respectful relationships, training and advancement
opportunities, respect for human rights and diversity and
competitive salaries and benefits.[1] A similar benefits package
is offered to both full-time and part-time employees.[2]
Sustainability Report
Social Performance
Occupational Health and Safety
The health and safety of our employees, facilities and communities is an
integral part of Westport’s daily business. When gauging world-class
safety performance, recordable injury rates and lost-time injury rates are
statistical, comparative industry measures. Our results are indicative
of our ongoing and significant commitment to injury prevention, risk
mitigation, regulatory compliance and continuous safety improvement.
Our Health and Safety Committee members are champions for workplace
safety. Westport maintains two Health and Safety Committees in British
Columbia or approximately one Committee for every 120 employees. [3]
Our Committees are made up of cross-functional management and
employee representatives who advise and recommend action on any
unresolved workplace health and safety issues brought to them.
We experienced no recordable injuries and no
lost time injuries in the reporting year.
Safety Incidents
fiscal years ended March 31 (unaudited)
2011
2010
2009
2008
2007
Recordable injury frequency
Recordable injury rate [4]
Lost time injury frequency
Lost time injury rate [5]
0
0
0
0
2
0.82
1
0.41
0
0
0
0
0
0
1
0.54
2
1.24
0
0
Product Responsibility
Quality and safety are imperatives across the product life cycle. Our
Quality Management System is certified to ISO 9001:2008 standards
for the design, assembly and commercialization of its liquefied natural
gas (LNG) fuel systems. Registration by QMI-SAI Global addresses
Westport’s needs, as a tier 1 automotive supplier, to provide truck original
equipment manufacturers (OEMs) with consistent products and support.
With nine billion people on the horizon
on a planet of finite resources, the space
race for which country can make the most
productive use of resources is on, and
these companies are Canada's great green
hope. Westport has been on our Cleantech
10™ list since its inception, and also has
the distinction of being a member of Best
50 Corporate Citizens list since 2008.
— Toby Heaps, Editor in Chief,
Corporate Knights
Westport Innovations Inc. 2011 Annual Report :: 5
Sustainability Report
Environmental Performance
Product Responsibility (continued)
Westport’s QMS comprises the organization’s policies and
procedures that aim to ensure that customer requirements are met
with consistency, resulting in enhanced customer confidence and
satisfaction. The QMS, other internal requirements and engineering
systems have contributed to no incidents of non-compliance with
regulations and voluntary codes concerning the health and safety
impacts of our products. Internal systems and processes have
been established to ensure that the health and safety impacts of our
products are assessed in each of the following life-cycle stages:[6]
IMPACT is an employee leadership team established to drive
community engagement and community enrichment. Launched
in 2007, IMPACT brings together the various volunteer activities,
events and initiatives that Westport employees were already involved
with into one coordinated effort. IMPACT’s vision of community
is broad and encompasses the communities in which we live,
our immediate neighbours in Vancouver and our workplace.
IMPACT initiatives and its three pillars of Environment, Education and
Community are profiled in more detail on westport.com. These three
platforms are the vehicles by which Westport can contribute to solutions
related to the alleviation of poverty, a more sustainable environment
Health and Safety Impacts Assessed at Life-Cycle Stage
Status
and the dialogue on the importance of science and technology.
Development of product concept
Research and development
Certification
Manufacturing and production
Marketing and promotion
Storage, distribution, and supply
Use and service
Disposal, reuse, or recycling
YES
YES
YES
PARTIAL
YES
PARTIAL
YES
PARTIAL
Environmental Performance
Environmental leadership is a core corporate value. In addition to the
environmental benefits of our natural gas engine technologies, it is
critical that our facilities are operated with a commitment to sustainability
and energy efficient. Our employees remain the best source of
suggestions for how to minimize Westport’s environmental impacts
and much progress has been made to date to improve our facilities,
testing equipment, fuel system technologies and general operations.
It is important to identify improvements and goals beyond regulatory
compliance to further expand the life cycle analysis of our products.
Our efforts to build on industry best practice and further develop our
internal processes will be outlined in future sustainability reports.
Community Engagement
Our employees make significant contributions to the communities
in which they live and work. Westport has supported the United
Way of the Lower Mainland with a spirited and employee-driven
workplace campaign since 2002. Since that time, Westport employees
have donated more than $400,000 to the United Way and our
campaigns have been recognized as leading workplace efforts.
A key challenge for us is how to link or integrate our voluntary and
philanthropic activities with business strategy. As we move towards
profitability, we will look to our employee-driven IMPACT team to
develop a series of recommendations related to corporate donations.
In the interim, we are pleased to support internal fundraising
efforts and offer each employee 16 hours of paid leave each year to
volunteer with a charitable organization of his/her own choosing.
6 :: Westport Innovations Inc. 2011 Annual Report
Energy
Given the complexity of fuel system testing and the number
of engines currently in development at Westport facilities, it is
challenging to identify a meaningful energy consumption target at the
beginning of the year. What we can do however is emphasize the
importance of energy efficiency and operational improvements.
The overall consumption of direct energy decreased in the reporting
period. This trend can be attributed to a number of factors:
1 The installation of a new bulk tank in January 2011 enables
us to test liquefied natural gas pumps and other fuel system
components on liquid nitrogen. Nitrogen is an inert gas with
similar properties to LNG and will further minimize the greenhouse
gas (GHG) emissions from our pump testing operations.
2 Three engineering trucks ran extended hours with
increased mileage and the extensive testing of production
pumps explains the higher consumption of LNG.
3 A number of test cells were occupied with early-stage
engine development work. As a result, we consumed
less compressed natural gas as the focus is on analysis
and diagnostics to optimize engine performance.
4 Propane consumption dropped due to the completion of
core emissions and performance development work related
to the product release of the Juniper 2.4-litre engine.
Sustainability Report
Environmental Performance
Direct Energy
Consumption
Diesel
Propane
gigajoules (GJ) for fiscal years ended March 31 (unaudited)
2011
2010
2009
2008
2007
Indirect Energy
Consumption
gigajoules (GJ) for fiscal years ended March 31 (unaudited)
2011
2010
2009
2008
2007
1,146.3
1,919.8
2,050.0
2,200.9
1,252.2
Electrical
5,960.9
8,725.9
8,114.5
8,403.5
6,870.6
119.8
614.5
353.0
38.3
93.6
Liquefied natural gas
13,395.0
6,795.0
12,551.1
15,625.2
13,511.3
Compressed natural gas
13,362.8
28,327.8
19,707.5
20,508.9
1,2504.0
Water
Natural gas returned to
pipeline
(7,101.5)
(2,508.0)
(7,167.4)
(11,122.1)
(10,803.4)
Net consumption
20,922.3
33,420.3
27,494.2
27,251.3
16,557.6
Westport is a BC Hydro Power Smart Partner, one of the province’s
leading business customers working towards positively impacting
their bottom line via the adoption of energy efficient practices
to manage consumption in a more sustainable manner.
We now operate three transient dynamometers at our High-Tech Centre
facility.[7] A transient dynamometer generates electricity during the engine
test thereby offsetting the amount we need to purchase. In the same way
that solar panels produce power for the building where they are installed,
a transient dynamometer enables our engine development activities to
generate electricity that can be used in the same technical facility.
As global water resources will be impacted by climate change,
water use is becoming an increasingly critical component of each
organization’s sustainability performance. Despite this, only the
largest industries in British Columbia have water meters with data
logging capability and the city of Vancouver does not currently
provide meters to light industrial or commercial customers.
Our calculations indicate that Westport facilities cumulatively have
an average daily rate of water use of approximately 13.5 m3 per day.
Engine and fuel system component testing activities use process
water that flows in a closed-loop thereby minimizing total water
withdrawals. Water conserving domestic appliances and fixtures have
been installed at all locations in an effort to further reduce our impact.
Westport Innovations Inc. 2011 Annual Report :: 7
Sustainability Report
Footnotes
Greenhouse Gas Emissions
The Greenhouse Gas Protocol developed by the World Business
Council on Sustainable Development (WBCSD) is the globally accepted
standard for GHG emissions accounting. The organizational boundary
of this inventory includes all of Westport’s British Columbia-based
facilities and includes both scope one and scope two emissions. [8]
We have not measured scope three emissions to date.
on bin size and frequency of collection, Westport generates
approximately 200 tonnes of waste annually. Reducing the amount
of waste sent to landfill remains a priority and we have launched
employee education and awareness efforts to communicate the
importance of minimizing the amount of waste generated.
Our Facilities Engineering Group tracks the amount of
waste recycled via our hazardous waste program, scrap
materials collection and office waste initiatives.
Greenhouse Gas
Inventory[9]
Total Scope 1
Direct Emissions
Total Scope 2
Indirect Emissions
tonnes CO2 equivalent for fiscal years ended March 31 (unaudited)
2011
2010
2009
2008
2007
Types of Hazardous and Solid Waste Recycled
1,192.31
2,005.38
1,383.25
1,563.59
948.13
Aluminum
Batteries
Coolant
Diesel
Lube oil
Stainless steel
Other plastic
Tires
194.00
245.00
244.00
253.00
206.00
Beverage Containers
E-waste
Paper
Viscor
Total GHG impact
1,386.31
2,250.38
1,627.25
1,816.59
1,154.13
Cardboard
Cellphones
Filters / rags
Plastic oil pails
Wastewater[11]
Light bulbs
Solvents
Wood
A heavy-duty liquefied or compressed natural gas engine offers a range
of environmental benefits including a reduction in GHG emissions.
As a clean-technology leader we ask our customers to demonstrate
Environmental Compliance
environmental leadership and therefore must do so ourselves. It is critical
Compliance with applicable federal, provincial, and municipal regulations
that we understand the carbon impact of our operations and look for
is a baseline environmental performance standard and we believe
efficiency and process improvements to minimize our own emissions.[10]
that leading organizations must go beyond minimum environmental
Finding comparable organizations against which to benchmark our
GHG emissions remains a challenge. There are currently no regulatory
requirements for a company of our size to disclose its emissions.
The process of compiling a GHG inventory is an important first step
in understanding reduction opportunities and measuring progress.
Climate Change Risks
Climate change may yield multiple, interrelated business risk
encompassing physical, operational and regulatory dimensions.
Extreme weather events and changing weather patterns may result
in physical damage to Westport property and facilities. The physical
impacts of climate change may result in increased financial costs
such as higher insurance premiums for operations in areas prone
to flooding or other natural events. Property taxes may increase as
local governments identify infrastructure adaptation requirements.
Energy demands per facility are likely to increase due to extreme
temperatures. Carbon pricing mechanisms such as cap and trade
regimes and/or a carbon tax will result in higher energy costs.
Westport’s direct operations and actual greenhouse gas
emissions are considered low-impact so the actual and
anticipated regulatory risks associated with climate change
mitigation or compliance obligations are low.
Waste Generation and Diversion
Waste reduction, reuse and recycling programs are well-
established and well-maintained. Using generic formulas based
8 :: Westport Innovations Inc. 2011 Annual Report
requirements. Since its inception in 1996, Westport has not received
any fines or non-monetary sanctions for environmental non-compliance.
Footnotes
1 As of March 31, 2011, Westport had a worldwide total of 344 employees
consisting mostly of engineers and technicians. Of that number, we had 319
full-time employees and 25 contract or part-time staff in our offices in Vancouver,
Canada, throughout the United States, Australia, Buenos Aires, China, France,
and Italy. CWI had 58 full-time employees, including 47 employees and 1
contract staff seconded from Cummins and 10 employees seconded from
Westport (Westport secondees included in the above total headcount).
2 Part-time employees must work at least three days per week to be eligible
for the same benefits package as full-time employees. Casual employees or
contractors are not eligible for benefits.
3 Health and Safety Committees are located at our main technical facility in
Vancouver and at the Westport Assembly Centre in Delta.
4 The recordable injury incident rate is the annualized rate of occupational injuries
and illness per 100 employees. It is a calculation of the number of injuries x
200,000/employee hours worked. First aid classified injuries are not included.
5 The lost time injury rate is a calculation of the total number of lost time injuries x
200,000/employee hours worked. Lost days refer to scheduled work days and
the count begins on the next scheduled work day immediately after the injury.
6 This list of life cycle stages is contained within the GRI G3 guidelines.
7 A fourth transient dynamometer will be installed in fiscal 2012.
8 Scope One Direct Emissions encompass both liquefied and compressed natural
gas, diesel, propane, and fuel used in company vehicles. Scope Two Indirect
Emissions include emissions associated with the purchase and use of electricity.
Scope Three Indirect Emissions include emissions associated with raw materials
processing, employee travel, waste management and materials production.
9 The GHG Protocol methodology used at this time only includes emissions
associated with fuel consumption and not energy and emissions associated
with fuel production, distribution and transport.
10 In Canada, Large Final Emitters (LFEs), those facilities that emit the equivalent
of 100,000 tonnes (100 kT) or more of carbon dioxide (CO2) equivalents per year
are required to disclose their emissions.
11 Wastewater includes ultrasonic cleaner solution and alkaline water from cooling
water towers.
Management’s Discussion and Analysis
Management’s Discussion and Analysis
Basis of Presentation
Forward Looking Statements
This Management’s Discussion and Analysis (“MD&A”) for
This MD&A contains forward-looking statements that are based on
Westport Innovations Inc. (“Westport”, the “Company”,
the beliefs of management and reflects our current expectations as
“we”, “us”, “our”) is intended to assist readers in analyzing
contemplated under the safe harbor provisions of Section 21E of the
our financial results and should be read in conjunction
United States Securities Act of 1934, as amended. Such statements
with the audited consolidated financial statements,
include but are not limited to statements regarding the demand for
including the accompanying notes, for the fiscal year ended
our products, our investments, cash and capital requirements, the
March 31, 2011. Our consolidated financial statements
intentions of partners and potential customers, the performance of
have been prepared in accordance with generally accepted
our products, our future market opportunities, our estimates and
accounting principles (“GAAP”) in Canada. The effect
assumptions used in our accounting policies, our accruals, including
of significant differences between Canadian GAAP and
U.S. GAAP has been disclosed in [note 24] to our audited
consolidated financial statements for the year ended
March 31, 2011. The Company’s reporting currency is the
United States dollar. This MD&A is dated June 8, 2011.
warranty accruals, our financial condition, and timing of when we
will adopt or meet certain accounting and regulatory standards.
These statements are neither promises nor guarantees but
involve known and unknown risks and uncertainties that may
cause our actual results, levels of activity, performance or
Effective April 1, 2010, the Company changed its
achievements to be materially different from any future results,
reporting currency from the Canadian dollar to the
levels of activity, performance or achievements expressed
United States dollar (“U.S. dollar”). All prior year
in or implied by these forward looking statements.
amounts have been translated into U.S. dollars.
On May 30, 2011, The Board of Directors approved a
results, industry and products, general economy, conditions of
fiscal year-end change from March 31 to December 31,
the capital and debt markets, government or accounting policies
These risks include risks related to revenue growth, operating
to align the year ends of all the consolidated
operating companies to the calendar year.
Additional information relating to Westport, including
our Annual Information Form (“AIF”) and Form 40-F,
is available on SEDAR at www.sedar.com and on
EDGAR at www.sec.gov. All financial information is
reported in U.S. dollars unless otherwise noted.
and regulations, technology innovations, as well as other factors
discussed below and elsewhere in this report, including the
risk factors contained in the Company’s most recent Annual
Information Form filed on SEDAR at www.sedar.com.
Readers should not place undue reliance on any such forward-
looking statements, which speak only as of the date they were
made. We disclaim any obligation to publicly update or revise
such statements to reflect any change in our expectations
or in events, conditions or circumstances on which any such
statements may be based or that may affect the likelihood that
actual results will differ from those set forth in the forward looking
statements except as required by National Instrument 51-102.
The forward looking statements contained in this document
speak only as of the date of this MD&A. Except as required
by applicable legislation, Westport does not undertake any
obligation to release publicly any revisions to these forward
looking statements to reflect events or circumstances after this
MD&A, including the occurrence of unanticipated events.
Westport Innovations Inc. 2011 Annual Report :: 9
Management’s Discussion and Analysis
Business Overview
Business Overview
We are a leading provider of high-performance, low-emission engine
::
Westport Heavy Duty (“Westport HD”) serves the heavy-duty
and fuel system technologies utilizing gaseous fuels. Our technology
engine markets and currently offers a 15-litre LNG engine for the
and products enable light-duty (2.4-litre), medium-duty (5.9- to
heavy-duty trucking market. Westport HD is our proprietary
8.9-litre), heavy-duty (11- to 16-litre) and high horsepower (> 16L)
development platform, engaged in the engineering, design and
petroleum-based fuel engines to use primarily natural gas, giving users
marketing of natural gas-enabling technology for the heavy-duty
a cleaner, more plentiful and generally less expensive alternative fuel.
diesel engine and truck market. The fuel for the Westport HD
Since our founding in 1995, we have focused on developing technology
to enable more environmentally sustainable engines without
compromising the performance, fuel economy, durability and reliability
of diesel engines. The substitution of natural gas for petroleum-based
fuel drives a significant reduction in harmful combustion emissions,
such as nitrogen oxides, particulate matter and greenhouse gas, in
addition to providing an abundant, relatively inexpensive alternative
fuel. Our systems can be used to enable combustion engines to
use gaseous fuels, such as natural gas, propane or hydrogen. Our
::
research and development effort and investment have resulted in
a substantial patent portfolio that serves as the foundation for our
differentiated technology offerings and competitive advantage.
system is typically carried on the vehicle as LNG to provide greater
energy density compared to CNG and to allow the vehicle to travel
farther before refueling. At the heart of the Westport HD system is
our proprietary high pressure direct injection technology, which
provides the environmental and cost benefits of natural gas while
delivering comparable benefits of diesel engines: high efficiency
over the speed and torque operating range, high torque capability
and robust reliability.
Juniper Engines Inc. (“Juniper”), a wholly owned subsidiary of
Westport, designs, produces and sells high-performance alternative
We leverage our proprietary technology by partnering with leading
fuel engines primarily in the sub-5-litre class initially targeting the
diesel engine and truck original equipment manufacturers (“OEMs”)
global CNG and liquefied petroleum gas (“LPG”) industrial and
to develop, manufacture and distribute our engines to a diverse
light-duty automotive market with sales and engineering support in
group of global truck and bus OEMs. Our strategic partnerships
North America, Europe and Asia. For industrial applications,
with OEMs provide access to their manufacturing capacity,
Juniper’s engines fully integrate multipoint injection technology with
supply chain and global distribution networks without incurring
Hyundai Motor Company’s 2.4-litre industrial engine platform. The
the considerable investment associated with these assets.
result is a high-performance, low-emissions solution that offers
We commercialize our technology in markets where demand
for clean, low emission engines is prevalent, including light-
duty, medium- to heavy-duty and heavy-duty as follows:
::
Cummins Westport Inc. (“CWI”), our 50:50 joint venture with
Cummins, Inc., serves the medium- to heavy-duty engine markets.
CWI’s engines are offered globally by more than 60 OEMs of transit
and shuttle buses, conventional trucks and tractors, and refuse
collection trucks, as well as specialty vehicles such as short-haul
port drayage trucks, material handling trucks, street sweepers and
vehicles for selected industrial applications. The fuel for CWI
engines is typically carried on the vehicles as compressed natural
gas (“CNG”) or liquefied natural gas (“LNG”). CWI engines are
produced at Cummins plants in the United States, China and India,
allowing CWI to leverage Cummins’ global manufacturing footprint
without incurring additional capital costs. CWI also utilizes
Cummins’ supply chain, back office systems and distribution and
sales networks.
10 :: Westport Innovations Inc. 2011 Annual Report
competitive advantages over incumbent products, including a
compact engine package, higher torque and power, and enhanced
acceleration and transient response. In the first quarter of fiscal
2011, Juniper commenced production shipments to its OEM launch
partner, Clark Material Handling Co. Juniper also delivered field trial
engines in an oilfield application in Canada, targeting the non-mobile
industrial market that also includes power generation and agriculture.
With the recent acquisition of OMVL S.p.A (“OMVL”), Juniper
entered the light-duty automotive market. OMVL brings multipoint
injection fuel systems, high-volume manufacturing and engineering
capabilities that will enable Juniper to grow through new OEM
relationships and continued aftermarket sales.
We have entered into agreements to capitalize on the growth of
alternative fuel engines in other geographic markets. In July 2010, we
formally invested and received a 35% interest in Weichai Westport Inc.
(“WWI”), an agreement with Westport, Weichai Power Co. Ltd. and
Hong Kong Peterson (CNG) Equipment Ltd., to focus on the Chinese
market. WWI intends to research, develop, design, manufacture,
market, distribute and sell advanced, alternative fuel engines (and
relevant parts and kits) for use in automotive, heavy duty trucking,
power generation and shipping applications. WWI utilizes Westport’s
natural gas technology expertise and the distribution network of engine
Management’s Discussion and Analysis
Selected Annual Financial Information
Selected Annual Financial Information
(expressed in thousands of United States dollars, except for
per share amounts, shares outstanding, and units shipped)
Units shipped
Total revenue
Gross margin
GM %
fiscal years ended March 31
2011
3,656
2010
3,921
2009
4,038
$
$
148,062
57,080
$
$
121,653
38,674
$
$
109,211
27,874
39%
32%
26%
Net loss
attributed to the Company
$
(42,283)
$
(34,689)
$
(20,410)
Net loss per share
—basic and diluted (i)
Weighted average
shares outstanding
Cash and short-term
investments
Total assets
Long-term financial
liabilities (ii)
Cash used in operations
before changes in non-cash
working capital (iii)
CWI income for the year
after taxes
CWI income
attributable to the Company
$
(1.00)
$
(1.02)
$
(0.67)
42,305,889
34,133,247
30,268,947
$
$
$
180,303
273,386
10,012
$
$
$
104,205
153,690
12,735
$
$
$
65,503
107,432
9,001
$
(24,470)
$
(22,994)
$
(22,392)
$
$
15,998
7,999
$
$
14,330
7,165
$
$
7,478
3,739
i Fully diluted loss per share is the same as basic loss per share as the effect of conversion of stock options,
warrants, and performance share units would be anti-dilutive.
ii Excluding current portions of warranty liability and other long-term liabilities.
iii see non-GAAP measures
manufacturing leaders seeking to deliver best-in-class solutions in a
rapidly developing market. In July 2008, we commenced operations
of BTIC Westport (“BWI”), a joint venture between Westport and
Beijing Tianhai Industry, to focus on tanks to support the Westport
HD business. BWI combines our core competencies in LNG fuel
systems with BTIC’s global cryogenic tank manufacturing capabilities.
The 50:50 joint venture fills a need within the natural gas vehicle
industry for more cost-effective, custom-engineered tanks for LNG.
On July 2, 2010, we acquired 100% of the outstanding shares of OMVL
and OMVL’s 51% share of Juniper for consideration of $25.7 million. We
paid $17.1 million on closing, and we expect to pay approximately $10.8
million on the third anniversary of the closing date. As a result of the
transaction, Juniper, previously a joint venture between wholly owned
subsidiaries of Westport and SIT Group of Italy, is now wholly owned by
Westport. We commenced consolidating 100% of the assets, liabilities,
revenues and expenses of Juniper and OMVL effective July 2, 2010.
On July 8, 2010, Westport and Volvo Powertrain (“VPT”), a subsidiary
of Volvo AB, signed a new agreement defining Westport’s responsibility
to develop a range of biogas and natural gas-fuelled engine products
for Volvo. Westport will also work directly with the Volvo AB brands to
help identify market development opportunities for natural gas vehicles
and assist in the infrastructure build-out of biogas and natural gas where
needed. Westport originally entered into an agreement with Volvo in
November 2009 describing Westport as a Tier 1 Development Supplier
for its heavy-duty natural gas engines and associated supply chain.
This new agreement is an evolved and expanded relationship, in which
the Company performs engine research and development contract
services and is paid by VPT as milestones under the agreement are
achieved. The Company completed the first milestone in September
2010 and a second milestone during the current quarter and recorded
related revenue of $3.1 million during the three months ended March
31, 2011 and $7.1 million for the year ended March 31, 2011.
On March 10, 2011, the Company entered into an agreement with
Volvo Truck Corporation (“VTC”), a subsidiary of Volvo AB, to perform
LNG tank module research and development contract services.
The Company completed the first milestone in this agreement and
recognized $1.0 million during the three months ended March 31, 2011.
Westport Innovations Inc. 2011 Annual Report :: 11
Management’s Discussion and Analysis
Overview of Fiscal 2011 Results
Overview of Fiscal 2011 Results
Operating Results
For the year ended March 31, 2011, our consolidated revenues increased
$26.4 million, or 21.7%, to $148.1 million from $121.7 million for the
year ended March 31, 2010. The increase relates to Juniper revenue
of $23.7 million as the Company began consolidating Juniper and
OMVL from July 2, 2010, VPT service fee revenue of $8.1 million and
an increase in CWI parts revenue of $2.7 million. These increases
were partially offset by a $3.2 million decrease in CWI product
revenue and a decrease in Westport HD revenue of $4.9 million.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with
Canadian GAAP, which requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial statements.
The Company’s accounting policies are described in [note 2] of the
annual consolidated financial statements. We have identified several
policies as critical to our business operations and in understanding our
results of operations. These policies, which require the use of estimates
and assumptions in determining their reported amounts, include our
accounting of CWI and BWI as a variable interest entities, equipment,
furniture and leasehold improvements, intangible assets, goodwill,
Our consolidated net loss for the year ended March 31, 2011 was
revenue recognition, inventories, stock based compensation and
$42.3 million, or $1.00 per share, compared to $34.7 million, or $1.02
warranty liability. The application of these and other accounting policies
per share, for the year ended March 31, 2010. The $7.6 million increase
in net loss was primarily due to a net loss in Juniper of $5.2 million,
and an increase in the Westport HD net loss of $4.1 million, which
was partially offset by an increase in CWI net income of $1.7 million.
Capital Management
are described in [note 2] of our fiscal 2011 annual consolidated financial
statements. Actual amounts may vary significantly from estimates used.
Variable Interest Entity Accounting
A variable interest entity (“VIE”) is any type of legal structure not
controlled by voting equity, but rather by contractual and/or other
In November 2010, we issued 6,957,500 common shares at a
financial arrangements. Interests in VIEs are consolidated by
price of $17.50 per share for gross proceeds of $121.8 million.
the company that is the primary beneficiary. We have identified
The net proceeds of $115.7 million (net of share issuance costs
CWI and BWI as VIEs and determined that we are the primary
of $6.1 million) will be used to further our business objectives
beneficiary in both cases. Accordingly, we consolidate CWI and
of developing technology and relationships in new and adjacent
BWI, reflecting 100% of their assets, liabilities, revenues and
market opportunities with OEM’s focused on light-duty industrial
expenses in our consolidated financial statements and present
and automotive, heavy-duty and high horsepower applications.
the 50% interest held by our joint venture partners, Cummins and
BTIC, as “Net income attributed to joint venture partners”.
Cash, Cash Equivalents and Investments
As of March 31, 2011, our cash, cash equivalents and short-term
Warranty Liability
investments balance was $180.3 million compared to $104.2 million
Estimated warranty costs are recognized at the time we sell our products
at March 31, 2010. For the year ended March 31, 2011, cash used
and included in cost of revenue. We use historical failure rates and
in operations was $24.0 million with $24.5 million used for operating
costs to repair product defects during the warranty period, together with
purposes and a $0.5 million surplus for working capital. We also
information on known products to estimate the warranty liability. The
paid cash of $13.0 million (net of cash acquired) for our acquisitions
ultimate amount payable and the timing will depend on actual failure
of OMVL and the remaining 51% of Juniper, invested $4.3 million in
rates and the actual cost to repair. We review our warranty provision
WWI, purchased $3.6 million of property and equipment and advanced
quarterly and record adjustments to our assumptions based on the latest
loans, net of repayment, of $2.8 million. We issued shares through a
information available at that time. Since a number of our products are
public share offering resulting in cash inflow of $115.7 million (net of
new in the market, historical data may not necessarily reflect actual costs
share issuance costs). The exercise of warrants originally issued to
to be incurred, and this exposes the Company to potentially significant
Industrial Technologies Canada and JF Mackie resulted in a $9.5 million
fluctuations in liabilities. New product launches require a greater use
cash inflow and the exercise of stock options resulted in an additional
of judgment in developing estimates until claims experience becomes
$3.3 million in cash. We also repaid our demand installment loan of
available. Product specific experience is typically available four or five
$3.2 million and CWI paid a dividend to our joint venture partner of
quarters after product launch, with a clear experience trend not evident
$6.0 million. We were impacted by foreign exchange on Canadian
until eight to twelve quarters after launch. We generally record warranty
dollar and Euro denominated cash, cash equivalents and short-term
expense for new products upon shipment using a factor based upon
investments and unrealized foreign exchange impacts on certain
historical experience from previous engine generations in the first year,
foreign currency denominated balances resulting in a $4.5 million
a blend of actual product and historical experience in the second year
impact on our cash equivalents and short-term investment balance.
and product specific experience thereafter. Adjustments to the warranty
12 :: Westport Innovations Inc. 2011 Annual Report
provision are recorded in cost of revenue. During the year, we decreased
our warranty provision to reflect new claims experience information
received on CWI products. These changes in estimates are discussed
further in the “Gross Margin” section under “Results from Operations”.
Revenue Recognition
Our primary source of revenue is from the sale of CWI spark ignited
engines, kits, LNG systems and parts and Juniper CNG and LPG
fuel systems for OEMs in the light-duty automotive and industrial
markets. Product revenue is recognized when the products are
shipped, title passes to the customers and collection is reasonably
assured. Product revenue also includes kit sales, fees earned from
performing test services, research and development activities for
third parties, and revenues earned from licensing our technologies to
third parties. Revenue from testing and research and development
activities is recognized as the services are performed. Amounts
received in advance of revenue recognition are recorded as deferred
revenue. Parts revenue is recognized when the parts are sold.
The Company also earns service revenue from its research and
development arrangements with VPT and VTC under which the Company
provides contract services relating to developing natural gas engines or
biogas engines for use in Volvo products. Service revenue is recognized
using the milestone method upon completion of project milestones
as defined and agreed to by the Company and VPT and VTC. The
Company recognizes consideration earned from the achievement of a
substantive milestone in its entirety in the period in which the milestone
is achieved. The Company has deemed all milestone payments within
the contracts to be substantive. The payment associated with each
Management’s Discussion and Analysis
Critical Accounting Policies and Estimates
Equipment, Furniture, and Leasehold Improvements
and Intangible Assets
Canadian GAAP requires that we consider whether or not there has
been an impairment in our long-lived assets, such as equipment,
furniture and leasehold improvements and intangible assets,
whenever events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. If such assets
are not recoverable, we are required to write down the assets to fair
value. When quoted market values are not available, we use the
expected future cash flows discounted at a rate commensurate with
the risks associated with the recovery of the asset as an estimate of
fair value to determine whether or not a write down is required.
Stock-Based Compensation
We account for stock-based compensation related to stock options,
performance share units and restricted share units granted to employees
and directors using the fair value method. The resulting compensation
expense for stock options is calculated using the Black-Scholes valuation
method net of estimated forfeitures and is recognized in results from
operations over the period in which the related employee services are
rendered. We account for performance shares by calculating the fair value
using a Monte-Carlo simulation and restricted share units by calculating
the fair value based on the market price of the Company’s common shares
on the date of grant. The compensation expense is recorded in the period
it is earned, which generally is the period over which the units vest.
Goodwill
milestone relates solely to past performance and is deemed reasonable
We do not amortize goodwill but instead test it annually for
upon consideration of deliverables and the payment terms within the
impairment, or more frequently when events or changes in
contract. Certain milestones under the contracts have yet to be defined.
circumstances indicate that goodwill might be impaired. This
Inventories
Inventories consist of fuel systems, component parts, work-in-progress
and finished goods associated with our Westport HD and Juniper
systems. We carry inventory at the lower of weighted average cost and
net realizable value. In establishing whether or not a provision is required
for inventory obsolescence, we estimate the likelihood that inventory
carrying values will be affected by changes in market demand for our
products and by changes in technology, which could make inventory
impairment test is performed annually at January 31.
We use a two-step test to identify the potential impairment and to
measure the amount of impairment, if any. The first step is to compare
the fair value of the reporting unit with its carrying amount, including
goodwill. If the fair value of the reporting unit exceeds its carrying
amount, goodwill is not considered impaired; otherwise, goodwill is
impaired and the loss is measured by performing step two. Under step
two, the impairment loss is measured by comparing the implied fair value
of the reporting unit goodwill with the carrying amount of goodwill.
on hand obsolete. We perform regular reviews to assess the impact of
We determine fair value using widely accepted valuation techniques,
changes in technology, sales trends and other changes on the carrying
including discounted cash flows and market multiple analyses.
value of inventory. When we determine that such changes have occurred
These types of analyses contain uncertainties because they require
and would have a negative impact on the carrying value of inventory on
management to make assumptions and to apply judgment to
hand, adequate provisions are recorded. Unforeseen changes in these
estimate industry economic factors and the profitability of future
factors could result in the recognition of additional inventory provisions.
business strategies. It is our policy to conduct impairment testing
based on our current business strategy in light of present industry
and economic conditions, as well as our future expectations.
Westport Innovations Inc. 2011 Annual Report :: 13
Management’s Discussion and Analysis
New Accounting Pronouncements and Developments
New Accounting Pronouncements and
Developments
Effective January 1, 2011, Canadian GAAP, as used by
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in Canada and the requirements of the
Securities and Exchange Commission in the United States, as applicable.
publicly accountable enterprises, has been replaced with
There are inherent limitations in the effectiveness of internal control
International Financial Reporting Standards (“IFRS”) as issued
over financial reporting, including the possibility that misstatements
by the International Accounting Standards Board.
may not be prevented or detected. Accordingly, even effective internal
We have determined that adopting U.S. GAAP at this time rather than
IFRS would be more relevant to our investor base, less disruptive
and less costly as we currently prepare a U.S. GAAP reconciliation in
controls over financial reporting can provide only reasonable assurance
with respect to financial statement preparation. Furthermore, the
effectiveness of internal controls can change with circumstances.
the notes to our consolidated financial statements and our systems
Management, including the CEO and CFO, has evaluated the
are set-up to capture U.S. GAAP information. Management expects
effectiveness of internal control over financial reporting, as defined
to transition to U.S. GAAP for our fiscal year starting April 1, 2011,
in Rules 13a–15(f) and 15d–15(f) of the Exchange Act, in relation to
as permitted by Canadian securities regulatory authorities. We will
criteria described in Internal Control–Integrated Framework issued
continue to monitor developments in IFRS standards, and our intent
by the Committee of Sponsoring Organizations of the Treadway
will be to transition to IFRS if and when adopted in the United States.
Commission (“COSO”). Based on this evaluation, Management has
Disclosure Controls and Procedures and
Internal Controls—Changes in Internal
Control Over Financial Reporting
Our disclosure controls and procedures are designed to provide
reasonable assurance that relevant information is gathered and reported
to senior management, including the Chief Executive Officer (“CEO”)
and the Chief Financial Officer (“CFO”), on a timely basis such that
appropriate decisions can be made regarding public disclosures. As of
the end of the period covered by this report, we evaluated, under the
supervision and with the participation of management, including the CEO
and CFO, the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a–15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended (“Exchange
Act”). The CEO and CFO have concluded that as of March 31, 2011,
determined that internal control over financial reporting was effective
as of March 31, 2011. KPMG LLP, our independent registered public
accounting firm, has audited our consolidated financial statements
and expressed an unqualified opinion thereon. KPMG has also
expressed an unqualified opinion on the effective operation of our
internal control over financial reporting as of March 31, 2011.
Results From Operations
Year Ended Mar. 31, 2011 Compared to
Year Ended Mar. 31, 2010
Product revenue by geographic region
(as a percentage of revenue)
Americas
Asia
Rest of the World
fiscal years ended March 31
2011
60%
15%
25%
2010
67%
14%
19%
our disclosure controls and procedures were effective to ensure that
ͯ Product revenue
information required to be disclosed in reports we file or submit under
Product revenue for the year ended March 31, 2011 increased $15.7
the Exchange Act is recorded, processed, summarized and reported
million, or 16.6%, to $110.5 million from $94.8 million in the prior
within the time periods specified therein and accumulated and reported
fiscal year. CWI product revenue decreased from $87.8 million to
to management to allow timely discussions regarding required disclosure.
$84.6 million as a result of lower shipments of engines, 3,629 units
We have also designed internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with Canadian GAAP. No changes were made in our internal
control over financial reporting during the year ended March 31, 2011
that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. The CEO and CFO, together
with other members of management, are responsible for establishing
and maintaining adequate internal control over the Company’s financial
reporting. Internal control over financial reporting is designed under
our supervision, and effected by the Company’s board of directors,
management, and other personnel, to provide reasonable assurance
14 :: Westport Innovations Inc. 2011 Annual Report
in fiscal year 2011 compared to 3,807 units in fiscal year 2010, and
the mix of engines sold. CWI also recorded kit revenue of $2.6
million and natural gas engine margin of $0.7 million in fiscal year
2011 compared to $4.5 million and $4.1 million, respectively, in
fiscal year 2010, as we completed deliveries to a customer in India.
Westport HD product revenue for the year ended March 31, 2011
decreased to $2.2 million with 27 systems delivered compared to $7.0
million with 114 systems delivered in the prior fiscal year. There have
been announced purchase orders for over 483 HD trucks featuring
Westport’s HD technology. The delivery time for these orders
depends on customer fleet turnover requirements and truck OEM
resources. Included in Westport HD product revenue for fiscal year
Results From Operations :: Year Ended Mar. 31, 2011 Compared to Year Ended Mar. 31, 2010
Management’s Discussion and Analysis
2011 was other HD revenue of $0.8 million, which was generated
Westport HD gross margin (including product parts and service) and
from contract services and the sale of used demo trucks during fiscal
gross margin percentage for the year ended March 31, 2011 was
year 2011 compared to nil in fiscal year 2010. Juniper contributed
$7.5 million and 57.1%, respectively, compared to a negative $0.1
$23.7 million in revenue for the year ended March 31, 2011. The
million and 0.9%, respectively, in the prior fiscal year. Westport HD
Company commenced consolidating Juniper effective July 2, 2010.
product margin for the year ended March 31, 2011 was negative
ͯ Parts revenue
Parts revenue for the year ended March 31, 2011 was $29.5 million
compared to $26.9 million in the prior fiscal year, an increase of
$2.6 million, or 9.7%. CWI parts revenue for the year ended March
31, 2011 was $26.7 million compared with $24.0 million in the
prior fiscal year due to an increase in parts sold and an expanded
parts list. The number of engines in the field, their age and their
reliability all impact upon parts revenue each period. Westport
HD parts revenue for the year ended March 31, 2011 was $2.7
million compared with $2.9 million in the prior fiscal year due to a
decrease in shipments of cryogenic tanks from BWI to domestic
customers in China of $0.8 million compared with $1.9 million in the
prior fiscal year. This decrease was partially offset by an increase
of $0.9 million in service and after market parts shipped compared
$1.0 million as a result of campaign expense of $1.2 million as well
as certain materials variances on engine shipments. This compares
to a negative Westport HD product gross margin of $1.3 million in
fiscal year 2010. The Company recorded gross margin of $8.1 million
on service revenue associated with the Agreements with VPT and
VTC as a result of achieving milestones during the year since the
costs related to the Agreements were recorded as research and
development expenses. Westport HD also recorded parts margin
of $0.4 million compared with $1.2 million in the prior fiscal year
primarily as a result of fewer tank shipments by BWI and lower after
market parts sales. Juniper recorded gross margin and gross margin
percentage of $5.3 million and 23.0%, respectively for the year ended
March 31, 2011. Juniper’s gross margin may fluctuate based on the
type, nature and mix of components or kits sold during the period.
with the prior fiscal year due to a higher number of units in service.
ͯ Research and development expenses
Juniper contributed $0.1 million in parts revenue for the fiscal year.
Research and development expenses, net of program funding,
ͯ Service revenue
Service revenue for the year ended March 31, 2011 was $8.1 million.
The Company signed Engine Development Agreements (“the
Agreement(s)”) with VPT on July 8, 2010 and VTC on March 10,
2011. The Agreements require VPT and VTC to pay the Company
a fixed amount over a three year period for performing engine and
tank module development services. The Company achieved two
milestones under the VPT Agreement in September 2010 and
March 2011 for the completion of certain proof of concept work
and achieved the first milestone under the VTC agreement in
March 2011. As a result, we recorded revenue on the achievement
of these milestones. All costs associated with VPT and VTC
development are recorded as research and development expenses
in the period incurred in the consolidated statement of operations.
ͯ Gross margin
Gross margin increased $18.4 million to $57.1 million, or 38.6% of
total revenue, for the year ended March 31, 2011 compared to $38.7
million, or 31.8% of total revenue, in the prior fiscal year. CWI product
gross margin and product gross margin percentage for the year
ended March 31, 2011 were $33.7 million and 39.9%, respectively,
compared to $29.8 million and 33.9%, respectively, for the prior fiscal
year. This increase in gross margin percentage was due primarily to
a reduction in warranty accrual of $3.7 million and campaign accrual
of $0.2 million compared to the prior fiscal year due to improved
product reliability. CWI parts gross margin percentage also increased
from 37.4% in the fiscal year 2010 to 39.6% in the fiscal year 2011
primarily due to a reduction in selling and warehousing expenses.
for the year ended March 31, 2011 increased $8.5 million to $34.7
million compared with $26.2 million for the prior fiscal year. CWI’s
net research and development expenses increased $2.3 million
from $7.7 million to $10.0 million during the year ended March 31,
2011. The increase in CWI research and development expense
related primarily to the timing of materials spending on product
development. Westport HD research and development expenses
increased $2.5 million to $21.0 million during the year ended March
31, 2011, primarily as a result of higher material costs associated
with product development, higher salary related expense due to
an increase in headcount and a reduction in government funding.
These increases were offset by lower costs associated with
certification efforts on Westport’s 2010 certification program that
was achieved in July 2010. Juniper research and development
expenses were $3.7 million for fiscal year 2011 and related to efforts
to expand product offerings to light-duty automotive OEMs.
Research and Development Expenses
(expressed in thousands of U.S. dollars)
Research and development expenses
Program funding
Research and development, net
fiscal years ended March 31
2011
36,338
(1,675)
$
2010
27,546
(1,333)
34,663
$
26,213
$
$
Westport Innovations Inc. 2011 Annual Report :: 15
Management’s Discussion and Analysis
Results From Operations :: Year Ended Mar. 31, 2011 Compared to Year Ended Mar. 31, 2010
ͯ General and administrative
in Juniper, which was accounted for on an equity basis prior to July 2,
General and administrative expenses for the year ended March 31,
2010. For the year ended March 31, 2011, we recorded income from
2011, increased $4.4 million to $16.2 million compared with $11.8
WWI of $1.0 million that was partially offset by losses of $0.2 million
million in the prior fiscal year primarily due to an increase in Westport
from our interest in Juniper in the first quarter of fiscal year 2011.
HD administrative costs of $2.1 million offset by a decrease in stock-
based compensation of $0.3 million. CWI general and administrative
expenses increased $0.2 million in the current fiscal year primarily
due to a one time salary benefit payment. The remaining increase
related to Juniper general and administrative expenses of $2.4 million.
ͯ Sales and marketing
ͯ Interest on long-term debt and amortization of discount
Interest on long-term debt and amortization of discount expense for
year ended March 31, 2011 was $3.3 million compared with $2.5
million for the year ended March 31, 2010. Fiscal year 2011 included
interest and accretion of the discount on the CDN$15.0 million
debenture units issued on July 3, 2008 and bearing interest at 9%
Sales and marketing expenses for the year ended March 31, 2011,
per annum, and the Company also recorded $0.3 million of accretion
increased $5.0 million to $21.7 million compared to $16.7 million in
expense relating to the long-term payable to the Sellers of OMVL.
the prior fiscal year. CWI sales and marketing expenses remained
flat at $7.7 million for the current and prior fiscal years. Westport
HD related expenses in fiscal year 2011 increased by $3.6 million to
$12.6 million primarily due to increases in stock-based compensation
of $0.6 million and increases in OEM related market development,
support and travel expenditures of $3.0 million. Juniper sales
and marketing expenses were $1.4 million during the fiscal year
and related to OEM and market development initiatives.
ͯ Foreign exchange gains and losses
Foreign exchange gains and losses reflect net realized gains and
losses on foreign currency transactions and the net unrealized gains
and losses on our non-CWI net U.S. dollar denominated monetary
assets and liabilities that are mainly composed of cash and cash
equivalents, short-term investments, accounts receivable and
Interest on long-term debt and amortization of discount of $2.5 million
for the year ended March 31, 2010 related to interest and accretion
on the subordinated debenture notes and interest on our demand
installment loan.
ͯ Gain on sale of long-term investments
Gain on sale of long-term investments in fiscal year 2010 related
to the sale of Clean Energy shares and the sale of our remaining
interest in Wild River Resources Ltd. (“Wild River”). The
Company sold 184,311 shares of Clean Energy in fiscal 2010
resulting in a gain on sale of $2.7 million. As at March 31, 2011
and 2010, the Company no longer owned any shares in Clean
Energy. We also sold our interest in Wild River for net proceeds
of $0.1 million resulting in a gain of $0.1 million in fiscal 2010.
accounts payable. In addition, the Company has foreign exchange
ͯ Income tax expense
exposure on its non-OMVL euro denominated monetary assets and
Income tax expense for the year ended March 31, 2011 was $9.6
liabilities including the euro denominated long-term liability payable
million, which compares to an expense of $8.4 million for the year
to the Sellers of OMVL. For the year ended March 31, 2011, we
recognized a net foreign exchange loss of $3.9 million with the
ended March 31, 2010. Current income tax expense representing
cash taxes payable was $8.9 million in fiscal year 2011 compared
significant increase in the Canadian dollar relative to the U.S. dollar.
with $9.7 million in fiscal year 2010, and we recorded a future
A significant portion of this loss is unrealized. This compares to a
income tax expense of $0.8 million, which compares to a recovery
net foreign exchange loss of $0.4 million in the prior fiscal year.
of $1.2 million in the prior fiscal year. Future income tax recoveries
ͯ Depreciation and amortization
Depreciation and amortization for the years ended March 31,
2011 and 2010 was $3.6 million and $2.0 million, respectively.
The increase in depreciation and amortization of $1.6 million
was primarily due to the depreciation of property and equipment
and intangible assets acquired in the purchase of OMVL.
ͯ Income from investment accounted for by the equity method
Income from investment accounted for by the equity method for the
years ended March 31, 2011 and 2010 was $0.8 million and a loss of
$1.0 million respectively. The amounts recorded in the current fiscal
year relates to our 35% interest in WWI and our previous 49% interest
16 :: Westport Innovations Inc. 2011 Annual Report
and expenses arise on the recognition of temporary differences
between the carrying amounts and the tax bases of our assets
and liabilities. CWI represents the majority of the tax provision in
both fiscal year 2011 and 2010 as the provision relating to CWI was
$9.2 million and $8.2 million, respectively. CWI has an effective
tax rate of approximately 36% representing federal and state tax
liabilities. Also, included in fiscal year 2011 is tax expense for OMVL
of $0.1 million. Westport HD entities are primarily in a loss position
or have losses carried forward that offset taxable income. During
fiscal years 2011 and 2010, we paid withholding tax on dividends
of $0.3 million and $0.1 million, respectively. During fiscal year
2010, there was also future income tax expense related to the sale
of our Clean Energy shares of $0.1 million as a result of reversing
a future tax credit arising on available for sale investments.
Results From Operations :: Year Ended Mar. 31, 2010 Compared to Year Ended Mar. 31, 2009
Management’s Discussion and Analysis
Year Ended Mar. 31, 2010 Compared to
Year Ended Mar. 31, 2009
Product revenue by geographic region
(as a percentage of revenue)
Americas
Asia
Rest of the World
ͯ Product revenue
fiscal years ended March 31
2010
67%
14%
19%
2009
84%
4%
12%
Product revenue for the year ended March 31, 2010, was $94.8 million,
up $2.3 million, or 2.5%, from $92.5 million in the prior fiscal year. CWI
product revenue increased $5.3 million, or 6.4%, in fiscal year 2010
to $87.8 million compared to $82.5 million in fiscal year 2009. CWI
product shipments decreased from 3,907 units in fiscal 2009 to 3,807
units in fiscal year 2010. The primary driver for the increase in CWI
product revenue was sales mix as a greater proportion of ISL G units
were shipped relative to the prior fiscal year, and this product generally
sold for a higher price than B Gas and C Gas units. Kit revenues, which
are included in product revenue, decreased by $0.8 million, or 15.1%,
in fiscal year 2010 to $4.5 million from $5.3 million in fiscal year 2009
because of timing of shipments relating to customers in India. This
of $4.5 million in the previous fiscal year. The warranty reserve in
fiscal year 2009 increased to reflect ISL G claims experience during
that year. The accrual rate on new ISL G engine shipments was
also increased in response to fiscal year 2009 claims experience.
During fiscal year 2010, the Company realized more favourable
claims experience, which resulted in a positive warranty reserve
adjustment and a reduction in the accrual rate on new engine sales.
The remaining difference related primarily to changes in business
mix and a higher parts margin in fiscal year 2010 relative to fiscal year
2009. Westport HD gross margin was slightly below breakeven level
in fiscal year 2010 compared with $1.8 million in fiscal year 2009 and
gross margin percentage was -0.9% for fiscal year 2010 compared
with 18.0% in the fiscal year 2009. The decrease in gross margin
percentage was driven by changes in the inventory obsolescence
provision and campaign charges of $1.7 million and $0.2 million,
respectively. We adjusted the inventory provision in fiscal year
2010 as a result of a lower proposed selling price on Westport HD
systems in fiscal year 2011, which was not sufficient to recover
costs on older key components. We also wrote down and scrapped
certain components associated with our previous upfit model.
was offset by an increase in CWI engine margin primarily on shipments
ͯ Research and development expenses
of B Gas engines by a manufacturer located in India, which increased
Research and development expenses, net of program funding,
by approximately $3.3 million compared with fiscal year 2009. For the
remained flat at $26.2 million in fiscal years 2010 and 2009. CWI
year ended March 31, 2010, Westport HD product revenues decreased
research and development expense increased $0.4 million due to
by $3.0 million, or 30.0%, to $7.0 million, with 114 HD units shipped in
an increase in material spending on new product development.
the fiscal year 2010, from $10.0 million and 131 units shipped in fiscal
Westport HD research and development expenses decreased by
year 2009. The revenue decline was due to a reduction in the average
$0.4 million in the year ended March 31, 2010. The reduction was
selling price, a change in sales mix from an upfit model to a sale of
primarily attributed to shifts in program costs including a reduction
fuel systems directly to the OEM, as well as lower sales volumes.
in OEM integration costs and implementation of cost reduction
ͯ Parts revenue
Parts revenue increased in fiscal year 2010 by $10.2 million, or
61.1%, to $26.9 million from $16.7 million in fiscal year 2009.
CWI parts revenue increased from $16.7 million in fiscal year
2009 to $24.0 million in fiscal year 2010. The increase is due to
initiatives, partially offset by lower government funding and higher
stock based compensation charges. Research and development costs
fluctuate with funding levels and stage of development programs.
Research and Development Expenses
(expressed in thousands of U.S. dollars)
Research and development expenses
fiscal years ended March 31
2010
27,546
(1,333)
$
2009
28,024
(1,856)
26,213
$
26,168
$
$
higher sales volumes. Westport HD parts revenue increased
Program funding
from $0.1 million in fiscal year 2009 to $2.9 million in fiscal year
Research and development, net
2010 primarily from sales of spark ignited tanks generated by
BWI of $1.9 million and also sold $1.0 million in service and after
ͯ General and administrative expenses
market parts as a result of a higher population of HD units.
ͯ Gross margin
General and administrative expenses for the year ended March
31, 2010 increased $4.3 million to $11.8 million from $7.5 million
in fiscal year 2009. CWI general and administrative expenses
Gross margin for the years ended March 31, 2010 and 2009 were
decreased in fiscal year 2010 by $0.2 million due to a one-time
$38.7 million and $27.9 million, respectively and gross margin
percentages were 31.8% and 25.5%, respectively. CWI gross
payment of compensation related expenses in the prior fiscal year.
Westport HD general and administrative expenses increased by $4.5
margin and gross margin percentage was $38.8 million and 34.7%
million primarily from an increase in stock-based compensation of
in fiscal year 2010 compared to $26.1 million and 26.3% in fiscal
$1.9 million as a result of one-time grants and accelerated vesting of
year 2009. The increase in gross margin percentage was primarily
certain performance share unit awards. In addition, the Company
the result of the favourable adjustment to warranty reserves in fiscal
incurred professional fees of $0.8 million relating to strategic
year 2010 of $2.0 million compared to an unfavourable adjustment
Westport Innovations Inc. 2011 Annual Report :: 17
Management’s Discussion and Analysis
Capital Requirements, Resources and Liquidity
development activities and an increase of $1.8 million relating to
ͯ Gain on sale of long-term investments
larger allocations of information technology development, rent
Gain on sale of long-term investments in fiscal year 2010 related
and office support costs to research and development expenses
to the sale of Clean Energy shares and the sale of our remaining
in the previous year and public company related expenses.
interest in Wild River Resources Ltd. (“Wild River”). The Company
ͯ Sales and marketing expenses
Sales and marketing expenses for the year ended March 31, 2010
increased $2.1 million to $16.7 million from $14.6 million in the prior
fiscal year. CWI sales and marketing expenses increased from $6.4
million in fiscal year 2009 to $7.7 million in fiscal year 2010 while
Westport HD sales and marketing expenses increased from $8.2
sold 184,311 shares of Clean Energy in fiscal year 2010 resulting in a
gain on sale of $2.7 million. As at March 31, 2010, the Company no
longer owned any shares in Clean Energy. We also sold our interest
in Wild River for net proceeds of $0.1 million resulting in a gain of $0.1
million in fiscal year 2010. In fiscal year 2009, we recorded realized
gains of $13.9 million related to the sale of Clean Energy shares.
million in fiscal year 2009 to $9.0 million in fiscal year 2010. The
ͯ Income tax expense
increase in CWI sales and marketing expense was primarily due to
Income tax expense for the year ended March 31, 2010 was
a $1.4 million increase in policy expense associated with customer
$8.4 million, and for the year ended March 31, 2009, we had
support on out of warranty engines. Westport HD sales and marketing
income tax expense of $6.1 million. Current income tax expense,
expense increased by $0.8 million primarily due to a higher stock-
representing cash taxes payable in the year, was $9.7 million
based compensation and an increase in product support costs.
and $2.7 million for fiscal years 2010 and 2009, respectively.
ͯ Foreign exchange gains and losses
Foreign exchange gains and losses reflected net realized gains
and losses on foreign currency transactions and the net unrealized
gains and losses on our non-CWI net U.S. dollar denominated
monetary assets and liabilities that are mainly comprised of cash
and cash equivalents, short-term investments, accounts receivable
and accounts payable. For the year ended March 31, 2010, we
recognized a net foreign exchange loss of $0.4 million with the
increase in the Canadian dollar relative to the U.S. dollar. This
compares to foreign exchange losses $0.7 million in fiscal year 2009.
ͯ Depreciation and amortization
Depreciation and amortization for the years ended March 31,
2010 and 2009 were $2.0 million and $1.7 million, respectively.
The increase in depreciation and amortization of $0.3 million
related primarily to depreciation of research equipment
and leasehold improvements owned for a full year.
ͯ Income/(loss) from investment accounted for by the equity method
Income/(loss) from investment accounted for by the equity method for
the year ended March 31, 2010 and 2009 were losses of $1.0 million
and $0.9 million, respectively, relating to our investment in Juniper.
ͯ Interest on long-term debt and amortization of discount
Future income tax recovery in fiscal year 2010 was $1.2 million
while in fiscal year 2009 a future income tax expense of $3.4
million was recorded. CWI represented the majority of the tax
provision in both fiscal year 2010 and 2009 as the provision
relating to CWI was $8.2 million and $3.9 million, respectively.
Capital Requirements,
Resources and Liquidity
As at March 31, 2011, our cash, cash equivalents and short-term
investment position was $180.3 million, an increase of $76.1 million
from $104.2 million at March 31, 2010. Cash and cash equivalents
consist of guaranteed investment certificates, term deposits and
bankers acceptances with maturities of 90 days or less when
acquired. Short-term investments consist of investment grade
bankers’ acceptances, term deposits and commercial paper.
We invest primarily in short-term paper issued by Schedule 1
Canadian banks, R1 high rated corporations and governments.
For year ended March 31, 2011, our cash used in operations was
$24.0 million. Cash used in operations before changes in non-cash
working capital, a non-GAAP measure, was $24.5 million. Changes
in non-cash working capital resulted in a surplus of $0.5 million. The
$0.5 million change in working capital was impacted by cash outflows
Interest on long-term debt and amortization of discount for the
from the settlement of accounts payable and accrued liabilities of
year ended March 31, 2010 of $2.5 million related to interest and
$2.8 million and inflows from the collection of accounts receivable
accretion on the subordinated debenture notes and interest on
of $5.5 million. Inventory increased $1.9 million, prepaid expenses
our demand installment loan. In fiscal year 2009, there was $1.6
increased $0.5 million and warranty liability decreased $2.9 million.
million in interest and amortization of discount related mainly to
This was offset by increases in deferred revenue of $3.1 million. Cash
the subordinated debenture notes. As the notes were issued on
used in investing activities included cash paid to acquire Juniper and
July 3, 2008, expense was recorded for only a portion of that fiscal
OMVL of $13.0 million (net of cash acquired), our investment in WWI
year. Interest on the debentures was recorded at 9% per annum.
of $4.3 million and the purchase of fixed assets of $3.6 million and loan
advances, net of repayment, of $2.8 million offset by net proceeds from
18 :: Westport Innovations Inc. 2011 Annual Report
Management’s Discussion and Analysis
Capital Requirements, Resources and Liquidity
the sale of short-term investments of $3.4 million. Cash provided by
We also continue to review investment and acquisition opportunities
financing activities included $115.7 million, net of share issuance costs,
on a regular basis for technologies, businesses and markets that would
raised in a public share offering and $12.7 million in shares issued for
complement our own products or assist us in our commercialization
warrant and stock option exercises offset by repayment of our demand
plans. Significant new orders, expanded engine programs, acquisitions
instalment loan of $3.2 million. CWI also paid $6.0 million in dividends
or investments could require additional funding. If such additional funding
to each parent company with Cummins share reflected as a reduction
is not available to us, if expected orders do not materialize or are delayed,
of the joint venture partner’s share of net assets of joint venture.
or if we have significant overspending in our programs, we may be
Foreign exchange resulted in an adjustment to cash and cash
equivalents of $3.1 million as a large portion of our cash balances are
maintained in Canadian dollars and Euros, and we also are exposed to
unrealized foreign exchange gains and losses on our foreign currency
denominated assets and liabilities, which result in an adjustment
when reconciling from net loss to cash and cash equivalents.
Our plan is to use our current cash, cash equivalents and short-term
investments, our share of CWI profits and borrowings under our
credit facility to fund our committed milestones and obligations for
our current programs. We will also continue to seek third party and
government funding on commercially acceptable terms to offset costs
of our investments; however, there are no guarantees that we will be
successful in obtaining third party funding on acceptable terms or at all.
required to delay, reduce or eliminate certain research and development
activities, reduce or cancel inventory orders, and possibly forego
new program, acquisition or investment opportunities. Any of those
circumstances could potentially result in a delay of the commercialization
of our products in development and could have an adverse effect on
our business, results of operations, liquidity and financial condition.
This “Capital Requirements, Resources and Liquidity” section contains
certain forward looking statements. By their nature, forward-looking
statements require us to make assumptions and are subject to inherent
risks and uncertainties. Readers are encouraged to read the “Forward
Looking Statements and Basis of Presentation” sections of this MD&A,
which discusses forward-looking statements and the “Risks and
Uncertainties” section of this MD&A and of our Annual Information Form.
During the first quarter of fiscal 2011, we terminated our existing
credit facility and entered into a new credit facility for maximum
Shares Outstanding
borrowings of $20.0 million Canadian dollars governed by a margin
For the years ended March 31, 2011, 2010 and 2009, the weighted
requirement limiting such borrowings to a calculated amount based
average number of shares used in calculating the loss per share was
on cash and investments held at the creditor. Borrowings may be
42,305,889, 34,133,247, and 30,268,947, respectively. During the
drawn in the form of direct borrowings, letters of credit, foreign
year ended March 31, 2011, we granted nil stock options and 424,149
exchange forward contracts and overdraft loans. Outstanding
share units relating to our long-term incentive programs. As part of the
amounts on direct borrowings and overdraft loans drawn under
debenture units issued on July 3, 2008, we issued 771,428 warrants
this credit facility bear interest at the prime rate. Letters of credit
with a strike price of CDN$18.73 and 46,118 broker warrants with a strike
drawn under this credit facility bear interest at 1% per annum. The
price of CDN$16.10. During fiscal year 2010, 24,100 warrants and 43,507
Company issued a letter of credit for $10.8 million on July 2, 2010.
broker warrants were exercised for proceeds of CDN$0.5 million and
During the third quarter of fiscal 2011, we issued 6,957,500
common shares at a price of $17.50 per share, for gross
proceeds of $121.8 million. The net proceeds of $115.7 million
(net of share issuance costs of $6.1 million) will be used for
developing technology and relationships in new and adjacent
market opportunities in light-duty industrial and automotive
applications, heavy-duty industrial and automotive applications, high
horsepower applications, and for general corporate purposes.
Westport’s capital requirements will vary depending on a number
of factors, including the timing and size of orders for our LNG
systems, our ability to successfully launch products on time,
our supply chain and manufacturing requirements, our success
in executing our business plan, relationships with current and
potential strategic partners, commercial sales and margins, product
reliability, progress on research and development activities,
capital expenditures and working capital requirements.
CDN$0.7 million, respectively. We also issued 790,614 warrants with
a strike price of CDN$10.65 to the Government of Canada, as required
under our funding agreement. The warrants issued to the Government
of Canada were exercised on April 14, 2010 for net proceeds of CDN$8.4
million. On July 3, 2010, all unexercised warrants and broker warrants
expired. The shares, share options and performance share units
outstanding and exercisable as at the following dates are shown below:
March 31, 2011
June 8, 2011
Shares outstanding
shares
46,972,304
WAEP*
shares
47,132,345
WAEP*
Share options
Outstanding
Exercisable
Share units
Outstanding
Exercisable
562,014
455,206
$
$
1,377,237
541,534
8.46
7.75
n/a
n/a
478,823
372,015
$
$
1,500,522
457,895
8.52
7.67
n/a
n/a
* weighted average exercise price (CDN$)
Westport Innovations Inc. 2011 Annual Report :: 19
Management’s Discussion and Analysis
Summary of Quarterly Results and Discussion of Fourth Quarter 2011
Summary of Quarterly Results and Discussion of Fourth Quarter 2011
Our revenues and operating results can vary significantly from quarter to quarter depending on the timing of product deliveries,
product mix, product launch dates, research and development project cycles, timing of related government funding and foreign
exchange impacts. Net loss has and can vary significantly from one quarter to another depending on operating results, gains and
losses from investing activities, stock-based compensation awards, recognition of tax benefits and other similar events.
The following table provides summary unaudited financial data for our last eight quarters:
Selected Quarterly Operations Data
(unaudited: expressed in thousands of United States dollars except for
per share amounts)
Units shipped
Product revenue
Parts revenue
Engineering service revenue
Total Revenue
Cost of sales
Gross margin
for the three months ended
2009-Jun-30 2009-Sep-30 2009-Dec-31 2010-Mar-31 2010-Jun-30 2010-Sep-30 2010-Dec-31 2011-Mar-31
622
1,053
1,202
1,044
730
1,115
1,036
775
$
$
$
$
$
$
16,801
4,980
-
21,781
16,206
5,575
$
$
$
$
$
$
21,942
7,099
-
29,041
21,710
7,331
$
$
$
$
$
$
28,557
7,814
-
36,371
22,080
14,291
$
$
$
$
$
$
27,503
6,957
-
34,460
22,983
11,477
$
$
$
$
$
$
18,870
6,621
-
25,491
16,738
8,753
$
$
$
$
$
$
$
$
$
$
$
$
34,189
6,663
4,052
44,904
27,082
17,822
40%
30,976
8,553
-
39,529
26,663
12,866
$
$
$
$
$
$
26,440
7,622
4,076
38,138
20,499
17,639
33%
46%
Gross margin percentage
26%
25%
39%
33%
34%
Net loss for the period attributable to the Company
$
(7,871) $
(8,193) $
(6,891) $
(11,734) $
(8,086) $
(6,251) $
(13,530) $
(14,416)
Earnings (loss) per share:
Basic
Diluted*
Company’s 100% share of CWI net income
CWI net income attributable to the Company
$
$
$
$
(0.25) $
(0.25) $
(0.20) $
(0.32) $
(0.21) $
(0.16) $
(0.31) $
(0.25) $
(0.25) $
(0.20) $
(0.32) $
(0.21) $
(0.16) $
(0.31) $
1,172
586
$
$
1,922
961
$
$
5,570
2,785
$
$
5,666
2,833
$
$
3,034
1,517
$
$
5,280
2,640
$
$
3,160
1,580
$
$
(0.31)
(0.31)
4,524
2,262
* Fully diluted loss per share is not materially different as the effect of stock options, warrants and performance share units would be anti-dilutive.
Three Months Ended March 31, 2011 And 2010
Our consolidated revenue for the three months ended March 31, 2011
was $38.1 million, an increase of $3.6 million, or 10.4%, from
$34.5 million in the same period in fiscal year 2010. The increase
relates primarily to Juniper revenue of $7.4 million as the Company
began consolidating Juniper and OMVL from July 2, 2010. CWI
product revenue was down $6.3 million as unit sales decreased from
998 units to 773 units primarily as the result of decreased volume
of ISL G engine sales. CWI parts revenue increased by $0.5 million
quarter over quarter due to an increase in units in service and price
increases on certain parts. Westport HD revenues for the quarter
ended March 31, 2011 increased by $2.0 million due to $4.1 million in
VPT service revenue recorded in the current quarter and an increase
in parts revenue of $0.1 million offset with a decrease in product
:: A decrease in our 50% share of CWI net income of $0.6 million
due to lower revenue and increased research and development
expenses incurred relating primarily to product development,
:: A increase in Westport HD operating costs of $2.1 million,
unfavorable foreign exchange loss of $1.5 million and a reduction
in interest income of $0.3 million, offset by VPT service
revenue of $4.1 million recorded in Westport HD, and;
:: Juniper net loss of $2.3 million driven by efforts to expand
product offerings to light duty automotive OEM’s.
Contractual Obligations and Commitments
carrying
amount
contractual
cash flows
< 1
year
1–3
years
4–5
years
> 5
years
revenue of $2.2 million due to 2 HD systems being shipped in the fourth
quarter of fiscal 2011 compared with 46 in the comparative quarter.
Accounts payable and
accrued liabilities
$ 24,765
$ 24,765
$ 24,765
$
Short-term debt
208
208
208
Our consolidated net loss for the three months ended
March 31, 2011 was $14.4 million, or a loss of $0.31 per diluted
share, compared to a net loss of $11.7 million, or a loss of $0.32
per diluted share, for the three months ended March 31, 2010.
The $2.7 million increase in net loss relates primarily to:
Subordinated debenture
notes
Other long-term debt
Operating lease
commitments
Royalty payments
14,948
10,144
-
1,392
15,818
11,002
3,957
26,815
20 :: Westport Innovations Inc. 2011 Annual Report
$ 51,457
$ 82,565
$ 43,879
$ 15,804
$ 22,882
$
$
-
-
-
$
-
-
-
-
15,818
133
10,869
1,563
1,392
2,150
2,785
244
22,638
-
-
-
-
-
-
-
Management’s Discussion and Analysis
Contingent Off-Balance Sheet Arrangements
Contractual Commitments
Capital lease obligations related primarily to office equipment and
machinery, have initial terms of three to five years and have interest
rates ranging from 2.13% to 6.17%. Operating lease commitments
represent our future minimum lease payments under leases related
primarily to our operating premises and office equipment.
Short-Term Debt
The short term debt is related to OMVL’s loan with Centrobanca – L46
which has expiration date of May 2011 at an interest rate of 1.012%.
Subordinated Debenture Notes
As at March 31, 2011, royalties of $1.4 million (CDN$1.4 million)
relating to ITO were paid and an additional $1.4 million
(CDN$1.4 million) was accrued during the year.
Business Risks and Uncertainties
An investment in our business involves risk and readers should carefully
consider the risks described in our Annual Information Form and other
filings on
www.sedar. com and www.sec.gov. Our ability to generate
revenue and profit from our technologies is dependent on a number
of factors, and the risks discussed in our Annual Information Form,
if they were to occur, could have a material impact on our business,
financial condition, liquidity, results of operation or prospects. While
we have attempted to identify the primary known risks that are material
Subordinated debenture notes bear interest at 9% per annum and mature on
to our business, the risks and uncertainties discussed in our Annual
July 3, 2011. Interest is payable semi-annually and the principal repayment
Information Form may not be the only ones we face. Additional risks
amount is repayable on maturity. The Company has the option to redeem
and uncertainties, including those that we do not know about now or
at 110% of the principal amount after 18 months from the date of issuance.
that we currently believe are immaterial may also adversely affect our
Royalty Payments
Royalty payments include annual royalties payable to ITO
as outlined in “Government Funding” below as well as a
technology access royalty fee payable from CWI to Cummins,
which is equal to 2.75% of engine revenue, to a cumulative
maximum of $10.4 million. As of March 31, 2011, $9.8 million
has been paid and $0.6 million remains outstanding.
Contingent Off-Balance Sheet Arrangements
Government Funding
We are continually exploring strategic opportunities to work with
governments to provide them with alternative fuel solutions. As a
result of our government partnerships, we recognized $1.7 million in
government funding in fiscal year 2011 compared with $1.3 million
in fiscal year 2010 and $1.8 million in fiscal 2009. Under certain
repayment terms, we are obligated to repay royalties as follows:
Description
Royalties
Term
Industrial Technologies Office
(formerly Technology Partnerships Canada)
Department Of Natural
Resources Canada
Fund 30% of the eligible costs of,
among other research projects, the
adaptation of Westport’s technology
to diesel engines, up to
CDN$18.9 million.
Funded CDN$1.0 million
for demonstration of a
low emissions natural
gas power generator in
Grande Prairie, Alberta.
Annual royalties equal to the greater
of CDN$1,350,000 or 0.33%
of annual gross revenues from
all sources, provided that gross
revenues exceed CDN$13.5 million.
1% of revenues from
future sales of natural
gas engines for power
generators.
Fiscal 2010 to fiscal 2015, inclusive;
royalty period may be extended until
the earlier of March 31, 2018 or until
cumulative royalties total
CDN$28.2 million.
Earlier of 10 years from
project completion date
(August 30, 2004), or
when cumulative royalties
total CDN$1.0 million.
business, financial condition, liquidity, results of operation or prospects.
A full discussion of the risks impacting our business is contained in
the Annual Information Form for the year ended March 31, 2011 under
the heading “Risks” and is available on SEDAR at www.sedar.com.
Non-GAAP Measures
We use certain non-GAAP measures to assist in assessing our
financial performance and liquidity. Non-GAAP measures do not have
any standardized meaning prescribed by GAAP and are therefore
unlikely to be comparable to similar measures presented by other
companies. Non-GAAP measures and reconciliations to financial
statement line items for the periods indicated are as follows:
Cash flows from operations before
changes in non-cash working capital
(expressed in thousands of U.S. dollars)
2011
2010
2009
Net loss for the year
$ (34,498)
$
(27,618)
$ (16,501)
Items not involving cash:
Depreciation and amortization
Stock-based compensation expense
Future income tax expense (recovery)
Change in deferred lease inducements
Gain on disposition of long-term
investments
(Income) loss from investment
accounted for by the equity method
Accretion of long-term debt
Other
3,596
4,923
761
(58)
1,957
4,530
(1,222)
(95)
1,749
1,974
3,385
(241)
-
(2,827)
(13,859)
(842)
1,992
(344)
983
1,298
-
910
363
(172)
$ (24,470)
$ (22,994)
$ (22,392)
Westport Innovations Inc. 2011 Annual Report :: 21
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Westport Innovations Inc.
financial reporting, assessing the risk that a material weakness
We have audited Westport Innovations Inc.’s, (“the Company”) internal
control over financial reporting as of March 31, 2011, based on the criteria
established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). The
Company’s management is responsible for maintaining effective internal
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
control over financial reporting and for its assessment of the effectiveness
A company's internal control over financial reporting is a process
of internal control over financial reporting, included in the accompanying
designed to provide reasonable assurance regarding the reliability
Management’s Report on Financial Statements and Assessment of Internal
of financial reporting and the preparation of financial statements
Control Over Financial Reporting. Our responsibility is to express an opinion
for external purposes in accordance with generally accepted
the Company’s internal control over financial reporting based on our audit.
accounting principles. A company's internal control over
We conducted our audit in accordance with the standards of the Public Company
financial reporting includes those policies and procedures that:
Accounting Oversight Board (United States). Those standards require that
1 pertain to the maintenance of records that, in reasonable
we plan and perform the audit to obtain reasonable assurance about whether
detail, accurately and fairly reflect the transactions
effective internal control over financial reporting was maintained in all material
and dispositions of the assets of the company;
respects. Our audit included obtaining an understanding of internal control over
MANAGEMENT'S REPORT to the
Shareholders
The consolidated financial statements presented here have been
2 provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and
prepared by management in accordance with Canadian generally
accepted accounting principles. The integrity and objectivity of the data in
3 provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
these consolidated financial statements are management’s responsibility.
disposition of the company's assets that could have
The company has implemented a system of internal accounting
and administrative controls in order to provide reasonable
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
assurance that transactions are appropriately authorized, assets
reporting may not prevent or detect misstatements. Also,
are safeguarded, and financial records are properly maintained
projections of any evaluation of effectiveness to future periods
to provide accurate and reliable financial statements.
The Board of Directors, through its Audit Committee, oversees
management’s responsibility for financial reporting and internal
control. The Audit Committee is comprised of four directors
who are not involved in the daily operations of the Company.
The duties of the committee include the review of the system
of internal controls, and of any relevant accounting, auditing and
financial matters. The Audit Committee meets on a regular basis
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of March 31,
2011 based on the criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
with management and the Company’s independent auditors to
We also have conducted our audit on the consolidated
ensure itself that its duties have been properly discharged. The
financial statements in accordance with Canadian generally
Audit Committee reports its findings to the Board for consideration in
accepted auditing standards and the standards of the Public
approving the financial statements for issuance to the shareholders.
Company Accounting Oversight Board (United States).
Our report dated June 8, 2011 expressed an unmodified
opinion on those consolidated financial statements.
David R. Demers,
Chief Executive Officer
June 8, 2011
Bill E. Larkin,
Chief Financial Officer
June 8, 2011
Chartered Accountants,
Vancouver, Canada
June 8, 2011
22 :: Westport Innovations Inc. 2011 Annual Report
Independent Auditors' Report of Registered Public Accounting Firm
Independent Auditors' Report of Registered Public Accounting Firm
To the Shareholders of Westport Innovations Inc.
Opinion
We have audited the accompanying consolidated financial statements
of Westport Innovations Inc., which comprise the consolidated
balance sheets as at March 31, 2011 and 2010, the consolidated
statements of operations, comprehensive loss, shareholders’
equity and cash flows for each of the years in the three-year
period ended March 31, 2011, and notes, comprising a summary of
significant accounting policies and other explanatory information.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Westport
Innovations Inc. as at March 31, 2011 and 2010 and the results
of its operations and its cash flows for each of the years in
the three-year period ended March 31, 2011 in accordance
with Canadian generally accepted accounting principles.
Other Matters
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of March 31,
2011 based on the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated June 8,
2011 expressed an unmodified opinion on the effectiveness
of the Company’s internal control over financial reporting.
Chartered Accountants
Vancouver, Canada
June 8, 2011
Management’s Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such
internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, we consider internal
control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances. An audit
also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates
made by management, as well as, evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is
sufficient and appropriate to provide a basis for our audit opinions.
Westport Innovations Inc. 2011 Annual Report :: 23
Consolidated Balance Sheets
Consolidated Balance Sheets
expressed in thousands of United States dollars :: as at March 31, 2011 and 2010
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Loan receivable [note 19(a)]
Inventories [note 5]
Prepaid expenses
Current portion of future income tax assets [note 18(b)]
Long-term investments [note 6]
Other assets [note 7]
Equipment, furniture and leasehold improvements [note 8]
Intangible assets [note 9]
Future income tax assets [note 18(b)]
Goodwill
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Demand installment loan [note 10]
Short-term debt
Current portion of long-term debt [note 11]
Current portion of warranty liability
Warranty liability
Long-term debt [note 11]
Other long-term liabilities [note 12]
Shareholders’ equity:
Share capital [note 14]:
Authorized:
Unlimited common shares, no par value
Unlimited preferred shares in series, no par value
Issued:
46,972,304 (2010 ▸ 38,494,475) common shares
Other equity instruments [note 16]
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive income
Joint venture partners’ share of net assets of joint ventures [note 19]
Commitments and contingencies [note 13] and [note 20]
Subsequent event [note 25]
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
24 :: Westport Innovations Inc. 2011 Annual Report
$
2011
148,462
31,841
15,934
14,200
16,805
1,786
6,084
235,112
5,622
1,852
12,083
7,001
3,514
8,202
$
2010
70,480
33,725
11,390
13,295
8,048
1,286
4,990
143,214
-
-
-
6,113
283
4,080
$
273,386
$
153,690
$
2011
24,765
2,041
-
208
15,080
12,151
54,245
5,884
10,012
7,096
77,237
430,659
4,205
5,378
(284,655)
25,641
181,228
14,921
196,149
$
2010
13,687
878
3,244
160
136
11,894
29,999
9,056
12,735
5,189
56,979
293,660
9,825
4,235
(242,372)
18,227
83,575
13,136
96,711
$
273,386
$
153,690
M.A. Jill Bodkin, Director
John A. Beaulieu, Director
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Consolidated Statements of Operations
Consolidated Statements of Operations
Product revenue
Parts revenue
Service revenue
$
Cost of revenue and expenses:
Cost of product and parts revenue
Research and development [note 15(c)] and [note 17]
General and administrative [note 15(c)]
Sales and marketing [note 15(c)]
Foreign exchange loss
Depreciation and amortization
Bank charges, interest and other
Loss before undernoted
Income (loss) from investment accounted for by the equity method [note 6]
Interest on long-term debt and amortization of discount
Interest and other income
Gain on sale of long-term investments
Loss before income taxes
Income tax recovery (expense) [note 18]:
Current
Future
Net loss for the year
Net income (loss) attributed to:
Joint venture partners [note 19]
The Company
2011
110,475
29,459
8,128
148,062
90,982
34,663
16,211
21,660
3,877
3,596
665
171,654
(23,592)
842
(3,323)
1,222
-
(24,851)
(8,886)
(761)
(9,647)
(34,498)
7,785
(42,283)
$
2010
94,803
26,850
-
121,653
$
82,979
26,213
11,839
16,741
379
1,957
419
140,527
(18,874)
(983)
(2,539)
392
2,827
(19,177)
(9,663)
1,222
(8,441)
(27,618)
7,071
(34,689)
2009
92,504
16,707
-
109,211
81,337
26,168
7,526
14,628
659
1,749
407
132,474
(23,263)
(910)
(1,624)
1,504
13,859
(10,434)
(2,682)
(3,385)
(6,067)
(16,501)
3,909
(20,410)
Loss per share attributable to the Company: Basic and diluted
$
(1.00)
$
(1.02)
$
(0.67)
Weighted average common shares outstanding: Basic and diluted
42,305,889
34,133,247
30,268,947
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
expressed in thousands of United States dollars :: years ended March 31, 2011, 2010, and 2009
Loss for the year
Other comprehensive income (loss):
Unrealized gain on available for sale securities,
net of tax of $nil (2010 ▸ $251, 2009 ▸ $359)
Reclassification of net realized gains on available for sale securities to
net loss, net of tax of $nil (2010 ▸ $300, 2009 ▸ $2,287)
Cumulative translation adjustment
Comprehensive loss
Comprehensive income (loss) attributable to:
Joint venture partners
The Company
See accompanying notes to consolidated financial statements.
$
$
$
2011
(34,498)
-
-
7,414
7,414
(27,084)
7,785
(34,869)
$
$
$
2010
(27,618)
1,757
(2,101)
14,431
14,087
(13,531)
7,071
(20,602)
$
$
$
2009
(16,501)
1,812
(11,555)
(15,604)
(25,347)
(41,848)
3,909
(45,757)
Westport Innovations Inc. 2011 Annual Report :: 25
Consolidated Statements of Shareholders’ Equity
expressed in thousands of United States dollars, except share amounts :: years ended March 31, 2011, 2010, and 2009
Balance, March 31, 2008
Issue of common shares on exercise of stock options
Issue of common shares on exercise of performance share units
Issue of common shares on settlement of accrued interest
Issue of common shares on public offering
Share issuance costs
Value of warrants issued with long-term debt
Value of warrants issued to settle obligation to issue warrants
Financing costs incurred
Stock-based compensation
Net loss for the year
Joint venture partners’ share of net income from joint ventures
Dividends paid by joint ventures
Other comprehensive loss
Balance, March 31, 2009
Issue of common shares on exercise of stock options
Issue of common shares on exercise of performance share units
Issue of common shares on public offering
Share issuance costs
Stock-based compensation
Net loss for the year
Joint venture partners’ share of net income from joint ventures
Dividends paid by joint ventures
Other comprehensive income
Balance, March 31, 2010
Issue of common shares on exercise of stock options
Issue of common shares on exercise of performance share units
Issue of common shares on exercise of warrants
Cancellation of common shares
Reclassification of fair value of expired warrants
Stock-based compensation
Issue of common shares on public offering
Share issuance costs
Net loss for the year
Joint venture partners’ share of net income from joint ventures
Dividends paid by joint ventures
Other comprehensive income
Balance, March 31, 2011
See accompanying notes to consolidated financial statements.
common shares
27,416,993
share capital
181,287
other equity
instruments
1,428
additional paid
in capital
4,098
accumulated
deficit
(187,273)
accumulated
other
comprehensive
income
29,487
joint venture
partners’ share
of net assets of
joint ventures
13,656
total
shareholders’
equity
42,683
104,669
3,947
14,931
4,500,000
-
-
-
-
-
-
-
-
-
1,781
18
221
54,000
(4,635)
-
-
-
-
-
-
-
-
32,040,540
232,672
389,580
601,855
5,462,500
-
-
-
-
-
-
3,634
3,190
57,356
(3,192)
-
-
-
-
-
38,494,475
293,660
472,414
241,825
858,221
(52,131)
-
-
6,957,500
-
-
-
-
-
5,115
3,239
13,853
(895)
-
-
121,756
(6,069)
-
-
-
-
-
(18)
-
-
-
3,838
3,397
(290)
1,493
-
-
-
-
9,848
-
(3,190)
3,167
-
-
-
-
-
-
9,825
-
(3,239)
(4,344)
-
(2,413)
4,376
-
-
-
-
-
-
(342)
-
-
-
-
-
-
-
-
-
-
-
481
4,237
(1,365)
-
-
-
1,363
-
-
-
-
4,235
(1,817)
-
-
-
2,413
547
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(20,410)
-
-
-
(207,683)
-
-
-
-
-
(34,689)
-
-
-
(242,372)
-
-
-
-
-
-
-
-
(42,283)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(25,347)
4,140
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,909
(7,500)
-
10,065
-
-
-
-
-
-
7,071
(4,000)
14,087
18,227
13,136
-
-
-
-
-
-
-
-
-
-
7,785
(6,000)
-
-
-
-
-
-
-
-
-
-
-
-
7,414
1,439
-
221
54,000
(4,635)
3,838
3,397
(290)
1,974
(20,410)
3,909
(7,500)
(25,347)
53,279
2,269
-
57,356
(3,192)
4,530
(34,689)
7,071
(4,000)
14,087
96,711
3,298
-
9,509
(895)
-
4,923
121,756
(6,069)
(42,283)
7,785
(6,000)
7,414
46,972,304 $
430,659 $
4,205
$
5,378 $
(284,655) $
25,641
$
14,921
$
196,149
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
expressed in thousands of United States dollars :: years ended March 31, 2011, 2010, and 2009
Cash flows from operating activities:
Loss for the year
Items not involving cash:
Depreciation and amortization
Stock-based compensation expense
Future income tax expense (recovery)
Change in deferred lease inducements
Gain on sale of long-term investments
Loss from investment account for by the equity method
Accretion of long-term debt
Other
Changes in non-cash operating working capital:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Warranty liability
Cash flows from investing activities:
Purchase of property and equipment
Sale (purchase) of short-term investments, net
Proceeds from disposition of long-term investments
Advances on loan receivable
Repayment on loan receivable
Purchase of subsidiaries, net of acquired cash [note 4]
Investment in equity interest [note 6]
Cash flows from financing activities:
Proceeds from demand installment loan
Payments on demand installment loan
Increase in short-term debt
Payments on short-term debt
Payments on bank loan and other long-term debt
Issuance of debenture notes
Finance costs incurred
Shares issued for cash
Share issuance costs
Dividends paid to joint venture partner
Effects of foreign exchange on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2011
2010
2009
$
(34,498)
$
(27,618)
$
(16,501)
3,596
4,923
761
(58)
-
(842)
1,992
(344)
5,523
(1,927)
(488)
(2,831)
3,058
(2,844)
(23,979)
(3,613)
3,376
-
(20,942)
18,185
(13,016)
(4,316)
(20,326)
-
(3,206)
-
-
(117)
-
-
134,563
(6,069)
(6,000)
119,171
3,116
77,982
70,480
$
148,462
$
1,957
4,530
(1,222)
(95)
(2,827)
983
1,298
-
(5,667)
5,523
54
645
1,526
1,495
(19,418)
(204)
7,584
3,744
(17,099)
12,721
-
-
6,746
-
(1,245)
-
(1,120)
(42)
-
-
59,625
(3,192)
(4,000)
50,026
2,171
39,525
30,955
70,480
1,749
1,974
3,385
(241)
(13,859)
910
363
(172)
899
(4,402)
(289)
4,713
2,878
10,758
(7,835)
(5,282)
(25,175)
17,189
(16,300)
14,014
(1,461)
-
(17,015)
443
(1,449)
160
(4,720)
964
13,687
(600)
55,439
(4,635)
(7,500)
51,789
(3,348)
23,591
7,364
$
30,955
Westport Innovations Inc. 2011 Annual Report :: 27
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Supplementary information:
Interest paid
Taxes paid
Non-cash transactions:
Purchase of equipment, furniture and leasehold improvements by
assumption of capital lease obligation
Shares issued on exercise of performance share units
Cancellation of performance share units
Shares issued for settlement of interest on convertible notes
Broker warrants issued with subordinated debt [note 11(a)] and [note 16]
Shares issued on obligation to settle warrants [note 16]
See accompanying notes to consolidated financial statements.
$
2011
1,729
11,394
-
2,344
895
-
-
-
$
2010
1,437
8,454
343
3,190
-
-
-
-
$
2009
811
1,460
-
18
-
221
266
3,397
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
1 Company Organization and Operations
Westport Innovations Inc. (the “Company”) was incorporated under
the Business Corporations Act (Alberta) on March 20, 1995.
The Company is focused on developing technology to enable more
environmentally sustainable engines without compromising the performance,
fuel economy, durability, and reliability of diesel engines. The substitution
of natural gas for petroleum-based fuel drives a significant reduction
in harmful combustion emissions, such as nitrogen oxides, particulate
matter, and greenhouse gas, in addition to providing an abundant, relatively
inexpensive alternative fuel. Our systems can be used to enable combustion
engines to use gaseous fuels, such as natural gas, propane, or hydrogen.
The Company has a joint venture interest in Cummins Westport Inc.
(“CWI”), a joint venture with Cummins Inc. (“Cummins”), formed in 2001
[note 15(a)]. CWI develops, supports and markets a comprehensive product
line of low-emission, high performance engines and ancillary products using
proprietary intellectual property developed by the Company and Cummins.
On July 2, 2010, the Company acquired, through its wholly owned subsidiary,
Juniper Engines Italy S.r.l., 100% of the outstanding shares of OMVL
S.p.A (“OMVL”), including its 51% interest in Juniper, from Società Italiana
Tecnomeccanica La Precisa S.p.A and Sit International B.V. [note 4]. OMVL
is based in Pernumia, Italy and designs, manufactures and markets complete
fuelling systems for new vehicles and the aftermarket conversion of engines
from gasoline to compressed natural gas and liquefied petroleum gas.
These consolidated financial statements have been presented on a going
concern basis, which assumes the realization of assets and the settlement
of liabilities in the normal course of operations. To date, the Company
has financed its operations primarily by equity and debt financing, sale of
investments, its share of operating cash flows from CWI, Juniper/OMVL,
28 :: Westport Innovations Inc. 2011 Annual Report
and margins on the sale of products and parts. If the Company does not
have sufficient funding from internal or external sources, it may be required
to delay, reduce or eliminate certain research and development programs
and forego acquisition of certain equipment. The future operations of
the Company are dependent upon its ability to produce, distribute, and
sell an economically viable product to attain profitable operations.
2 Significant Accounting Policies
a Basis of presentation
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and variable interest entities
for which the Company is considered the primary beneficiary.
Intercompany balances and transactions have been eliminated.
Interests in variable interest entities are consolidated by the Company if the
Company is the primary beneficiary. The Company has identified CWI and
BTIC Westport Inc. (“BWI”) as variable interest entities and determined
that the Company is the primary beneficiary. Accordingly, the Company
has consolidated these entities. The 50% interest held by the Company’s
joint venture partners is reflected as “Joint Venture Partners’ share of net
assets of joint ventures” in these consolidated financial statements.
Effective April 1, 2010, the Company changed the reporting currency for
its consolidated financial statement presentation from the Canadian dollar
to the United States dollar. The functional currency of the Company’s
operations continues to be the Canadian dollar except for CWI, which
continues to use the U.S. dollar as its functional currency, and OMVL
[note 4], which uses the Euro as its functional currency. The Company
translates its consolidated Canadian dollar and Euro functional currency
financial statements into the reporting currency using the current rate
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
method. All assets and liabilities are translated using the period end
exchange rates. Shareholders’ equity balances are translated using a
weighted average of historical exchange rates. Revenues and expenses are
translated using the monthly average rate for the period. All comparative
amounts have been restated on a retroactive basis to give effect to the
change in reporting currency. Except as otherwise noted, all amounts in
these financial statements are presented in U.S. dollars. The year-end
exchange rate of the Canadian dollar as at March 31, 2011 was $1.03
(March 31, 2010 ▸ $0.98), and the average exchange rate for the fiscal year
was $0.98 (2010 ▸ $0.92, 2009 ▸ $0.89). The period end exchange rate
of the Euro was 1.42 (July 2, 2010 ▸ 1.26), and the average exchange rate
for the Euro was 1.34 for the period from July 2, 2010 to March 31, 2011.
f Equipment, furniture, and leasehold improvements
Equipment, furniture, and leasehold improvements are
stated at cost. Depreciation is provided as follows:
assets
Computer equipment and software
Furniture and fixtures
Machinery and equipment
basis
Straight-line
Straight-line
Straight-line
rate
3 years
5 years
8 years
Leasehold improvements
Straight-line
Lease term
g Long-term investments
These consolidated financial statements are presented in accordance
The Company accounts for investments in which it has significant
with Canadian generally accepted accounting principles, which
influence using the equity basis of accounting. All other long-term
conform in all material respects with accounting principles generally
investments, other than warrants, are designated as available for sale
accepted in the United States, except as outlined in [note 24].
and recorded at their fair value to the extent a reliable fair value is
b Cash and cash equivalents
determinable. Changes in fair value are recognized in accumulated other
comprehensive income (loss). A decline in value that is considered other
than temporary is recognized in net loss for the period. Investments in
Cash and cash equivalents includes cash, term deposits, bankers
warrants are accounted for as derivative instruments and recognized at
acceptances and guaranteed investment certificates with maturities of
fair value. Changes in fair value are recognized in net loss for the year.
ninety days or less when acquired. Cash equivalents are considered
as held for trading and recorded at fair value with changes in fair
value recognized in the consolidated statement of operations.
c Short-term investments
h Financial liabilities
Accounts payable and accrued liabilities, demand installment loan,
short-term debt and long-term debt are measured at amortized cost.
Transaction costs relating to long-term debt are netted against the
Short-term investments, consisting of investment grade commercial
liability on initial recognition and are amortized using the effective
paper, banker acceptances, bearer deposit notes, guaranteed investment
interest rate method. For debt instruments containing debt and
certificates and other term deposits, are considered available for sale and
equity components, the proceeds received are allocated between the
recorded at fair value with changes in fair value recognized in accumulated
debt and equity components based on their relative fair values.
other comprehensive income until realized. A decline in value that is
considered other than temporary is recognized in net loss for the period.
d Accounts and loans receivable
i Research and development costs
Research costs are expensed as incurred and are recorded net of
government funding received or receivable. Development costs are
Accounts receivable and loans receivable are measured at amortized
deferred only if they meet certain stringent criteria generally related to
cost. An allowance for doubtful accounts is recorded based on
a review of specific accounts deemed uncollectible. Account
technical feasibility, market definition and financing availability for future
development; otherwise, development costs are expensed as incurred.
balances are charged against the allowance in the period in which it
Related investment tax credits reduce research and development expenses
is considered probable that the receivable will not be recovered.
in the same year in which the related expenditures are charged to earnings
e Inventories
or loss, provided there is reasonable assurance the benefits will be realized.
As at March 31, 2011 and 2010, no development costs had been deferred.
The Company’s inventory consists of the Company’s fuel system
products (finished goods), work-in-progress, purchased parts and
j Government assistance
assembled parts. Inventories are recorded at the lower of cost and net
The Company periodically applies for financial assistance under
realizable value. Cost is determined based on the lower of weighted
available government incentive programs, which is recorded in
average cost and net realizable value. The cost of fuel system product
the period it is received or receivable. Government assistance
inventories, assembled parts and work-in-progress includes materials,
relating to the purchase of equipment, furniture, and leasehold
labour, and production overhead including depreciation. An inventory
improvements is reflected as a reduction of the cost of such assets.
obsolescence provision is provided to the extent cost of inventory
Government assistance related to research and development
exceeds net realizable value. In establishing the amount of the inventory
activities is recorded as a reduction of the related expenditures.
obsolescence provision, management estimates the likelihood that
inventory carrying values will be affected by changes in market demand
and technology, which would make inventory on hand obsolete.
k Intangible assets
Intangible assets consist primarily of the cost of intellectual property,
trademarks, technology, customer contracts and non-compete agreements.
The intangible assets are amortized over their estimated useful lives.
Westport Innovations Inc. 2011 Annual Report :: 29
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
2 Significant Accounting Policies (continued)
l
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment, including
equipment, furniture, and leasehold improvements and intellectual
property, to be held and used whenever events or changes in
circumstances indicate that the carrying amount of the assets may not
be recoverable. If such conditions exist, assets are considered impaired
if the sum of the undiscounted expected future cash flows expected
to result from the use and eventual disposition of an asset is less than
its carrying amount. An impairment loss is measured at the amount by
which the carrying amount of the asset exceeds its fair value. When
quoted market prices are not available, the Company uses the expected
future cash flows discounted at a rate commensurate with the risks
associated with the recovery of the asset as an estimate of fair value.
m Goodwill impairment
Goodwill is not amortized and instead is tested at least annually
for impairment, or more frequently when events or changes in
circumstances indicate that goodwill might be impaired. This
impairment test is performed annually at January 31.
becomes available. Product specific experience is typically available four
or five quarters after product launch, with a clear experience trend not
evident until eight to twelve quarters after launch. The Company records
warranty expense for new products upon shipment using a factor based
upon historical experience from previous engine generations in the first year,
a blend of actual product and historical experience in the second year and
product specific experience thereafter. The ultimate amount payable by the
Company and the timing will depend on actual failure rates and cost to repair
failures of its products. Since a number of the Company’s products are new
in the market, historical data may not necessarily reflect actual costs to be
incurred and may result in significant fluctuations in the warranty liability.
o Extended warranty
The Company sells extended warranty contracts that provide coverage
in addition to the basic two-year coverage. Proceeds from the sale of
these contracts are deferred and amortized over the extended warranty
period commencing at the end of the basic warranty period. On a
periodic basis, management reviews the estimated warranty costs
expected to be incurred related to these contracts and recognizes a
loss to the extent such costs exceed the related deferred revenue.
A two-step test is used to identify a potential impairment and to measure
p Revenue recognition
the amount of impairment, if any. The first step is to compare the fair
value of the reporting unit with its carrying amount, including goodwill.
If the fair value of the reporting unit exceeds its carrying amount,
goodwill is considered not impaired; otherwise, goodwill is impaired
and the loss is measured by performing step two. Under step two,
the impairment loss is measured by comparing the implied fair value
of the reporting unit goodwill with the carrying amount of goodwill.
Product and parts revenue is recognized when the products are shipped
and title passes to the customer. Revenue also includes fees earned from
performing research and development activities for third parties, as well
as technology license fees from third parties. Revenue from research
and development activities is recognized as the services are performed.
Revenue from technology license fees is recognized over the duration of
the licensing agreement. Amounts received in advance of the revenue
We determine fair value using widely accepted valuation techniques,
recognition criteria being met are recorded as deferred revenue.
including discounted cash flows and market multiple analyses. These types
of analyses contain uncertainties because they require management to make
assumptions and to apply judgment to estimate industry economic factors
and the profitability of future business strategies. It is our policy to conduct
impairment testing based on our current business strategy in light of present
industry and economic conditions, as well as our future expectations.
The Company also earns service revenue from a research and development
arrangement with Volvo Powertrain (“VPT”) and Volvo Truck Corporation
(“VTC”) under which the Company provides contract services relating
to developing natural gas engines or biogas engines for use in Volvo
products. Service revenue is recognized using the milestone method upon
completion of project milestones as defined and agreed to by the Company
We record goodwill at the time of purchase for the excess of the
and VPT and VTC. The Company recognizes consideration earned from
amount of the purchase price over the fair values of the assets
the achievement of a substantive milestone in its entirety in the period in
acquired and liabilities assumed. Future adverse changes in market
which the milestone is achieved. The Company has deemed all milestone
conditions or poor operating results of underlying assets could
payments within the contract to be substantive. The payment associated
result in losses or an inability to recover the carrying value of the
with each milestone relates solely to past performance and is deemed
goodwill, thereby possibly requiring an impairment charge.
reasonable upon consideration of deliverables and the payment terms within
the contract. Certain milestones under the contract have yet to be defined.
n Warranty liability
Estimated warranty costs are recognized at the time the Company sells
q Income taxes
its products and are included in cost of revenue. The Company provides
The Company uses the asset and liability method of accounting for income
warranty coverage on products sold for a period of two years from the
taxes. Under this method, future income tax assets and liabilities are
date the products are put into service by customers. Warranty liability
determined based on temporary differences between the accounting
represents the Company’s best estimate of warranty costs expected to be
and tax basis of the assets and liabilities and for loss carry forwards and
incurred during the warranty period. Furthermore, the current portion of
are measured using the tax rates expected to apply when these tax
warranty liability represents the Company’s best estimate of the costs to
assets and liabilities are recovered or settled. The effect on future tax
be incurred in the next twelve-month period. The Company uses historical
assets and liabilities of a change in tax rate is recognized in income in
failure rates and cost to repair defective products together with known
the period that includes the substantive enactment date. A valuation
information to estimate the warranty liability. New product launches require
allowance is recorded against any future income tax asset if it is not
a greater use of judgment in developing estimates until claims experience
“more likely than not” that the benefit of these assets will be realized.
30 :: Westport Innovations Inc. 2011 Annual Report
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
r Stock-based compensation plans
The Company has stock option plans, which are described in [note 15(a)].
The Company accounts for stock-based compensation related to stock
options granted to employees and directors at their fair value on the
date of grant. Compensation expense, net of estimated forfeitures,
is recognized in results from operations over the vesting period. The
Company has an employee share purchase plan, which is described
in [note 15(b)]. The Company matches the employees’ contribution
and recognizes this cost as an expense in the period it is incurred.
The Company also issues share units under its stock option plans as
described in [note 15(c)]. The Company grants both restricted share units
(“RSUs”) and performance share units (“PSUs”). The Company accounts
for stock-based compensation related to RSUs and PSUs (the “Units”)
at their fair value on the date of grant and compensation expense, net of
estimated forfeitures, is recognized in the period earned, which generally
is the period over which the Units vest. Certain Units vest based on
both a service condition and a market condition which is determined
by the performance of the Company’s share price on the Toronto Stock
Exchange. The impact of market conditions, if any, on the compensation
expense is determined at the time of grant with no adjustment to the
compensation expense for actual result of the market condition.
s Post-retirement benefits
The Company has implemented a group-registered retirement savings
plan (“RRSP”) in which full-time employees of the Company are eligible
to participate. Eligible employees may make contributions up to their
personal eligible contribution limit under the Canadian Income Tax Act.
The Company contributes up to a maximum combined total of 5% of the
employee’s regular base pay to the RRSP and/or the employee share
purchase plan and recognizes this cost as an expense in the period it is
incurred. During the year ended March 31, 2011, the Company recognized
$661 (2010 ▸ $635; 2009 ▸ $514) of expense associated with the RRSP.
t Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during
the period. Significant areas requiring the use of estimates are the
determination of the fair value of assets and liabilities acquired in business
combinations, the determination of future cash flows and discount rates for
impairment of long-lived assets, valuation of inventories, determination of
fair value of options, RSUs and PSUs, valuation of future income tax assets
and the determination of warranty liability. Actual results could differ from
estimates used in the preparation of the consolidated financial statements.
u Loss per share
Basic loss per share is calculated using the weighted average number of
shares outstanding during the period. Diluted loss per share is computed
similarly to basic loss per share, except the weighted average number
of shares outstanding is increased to include additional shares from the
assumed exercise of conversion options, stock options, warrants, and
performance share units, if dilutive. For stock options, warrants and
share units, the number of additional shares is calculated by assuming
that outstanding stock options, warrants and share units were exercised
at the beginning of the year or when granted and the proceeds from
such exercises were used to repurchase shares of common stock at
the average market price during the period. For conversion options, the
Company uses the if-converted method, which assumes the exercise
of options occurs at the beginning of the year or when granted. For
all periods presented, diluted loss per share does not differ from basic
loss per share as the impact of dilutive securities is anti-dilutive.
3 Accounting Changes
a Adoption of new accounting standards
In January 2009, the Canadian Institute of Chartered Accountants
(“CICA”) issued handbook sections 1582, Business Combinations, 1601,
Consolidated Financial Statements, and 1602, Non-controlling interests.
These sections replace the former handbook sections 1581, Business
Combinations, and 1600, Consolidated Financial Statements, and establish
a new section for accounting for a non-controlling interest in a subsidiary.
Handbook section 1582 is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2011. Handbook sections 1601
and 1602 apply to interim and annual consolidated financial statements
for periods beginning on or after January 1, 2011. The new sections
address accounting for business combinations using the purchase method
and the classification and recognition of non-controlling interests. The
Company early adopted these handbook sections effective April 1, 2010.
As a result, the acquisition of OMVL and Juniper Engines Inc. (“Juniper”)
[note 4] was recorded under the provisions of these sections. The
Company previously held 49% of Juniper and as a result of the acquisition,
no longer records its previous 49% interest in Juniper under the equity
method of accounting from July 2, 2010. As a result of adopting section
1602, the Company also reclassified joint venture partners’ share of net
assets in joint ventures from liabilities to shareholders’ equity on the
consolidated balance sheet and changed the presentation of net income
attributable to the Company and joint venture partners in the statements
of operations, comprehensive loss, shareholders’ equity, and cash flows.
b Future accounting changes
As at January 1, 2011, Canadian GAAP as used by publicly accountable
enterprises has been replaced by International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board. Full
adoption of IFRS is required for all publicly accountable enterprises for fiscal
years beginning on or after this date. Therefore, the fiscal year ended March
31, 2011 is the last year the Company’s financial statements are prepared
in accordance with Canadian GAAP. Starting April 1, 2011, the Company
will adopt accounting principles generally accepted in the United States of
America (“U.S. GAAP”) as permitted by Canadian regulatory authorities.
The Company will adopt IFRS if and when IFRS and U.S. GAAP converge.
Westport Innovations Inc. 2011 Annual Report :: 31
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
4 Business Combinations
On July 2, 2010, the Company acquired, through its wholly owned subsidiary,
Juniper Engines Italy S.r.l., 100% of the outstanding shares of OMVL,
including its 51% interest in Juniper, from Società Italiana Tecnomeccanica
La Precisa S.p.A and Sit International B.V. (collectively the “Sellers”). The
fair value of the consideration for the acquisition was $25,711. Westport
paid cash of $17,146 on closing, and is required to pay $10,778 (€7,600 euro)
on the third anniversary of the closing date. The obligation to the Sellers
payable on July 2, 2013 was recognized as a liability on the acquisition date
and recorded at fair value. The amount is non-interest bearing and the
The Company recognized goodwill associated with the transactions of
$7,573. The goodwill includes the value of the assembled work force and
expected synergies including access to markets and supply chain integration.
Goodwill as at March 31, 2011 was $8,202 reflecting the effect of changes
in foreign exchange rates. Goodwill is not deductible for tax purposes.
The consolidated financial statements for the year ended March 31, 2011
reflect consolidated revenue for Juniper (including OMVL) of $23,713 and
net loss of $5,138 from the acquisition date. Had the Company acquired
OMVL on April 1, 2010, the Company’s pro forma revenue and net loss
for the year would have been $158,580 and $39,785 respectively.
fair value was determined using a credit adjusted risk free rate of 3.72%
The Company incurred acquisition related expenses of $397 for
to discount future cash flows. The long-term payable to the Sellers is
the year, which has been recorded in general and administrative
recorded in long-term debt on the consolidated balance sheet [note 11].
expenses in the consolidated statements of operations.
The Company also entered into an “on first demand” bank guarantee
in favour of the Sellers with Banca Intesa S.p.A covering the
Company’s future payment obligation payable on July 2, 2013. The
bank guarantee is subject to a cross guarantee with the Bank of
Montreal with whom the Company has a credit facility [note 10].
OMVL is based in Pernumia, Italy and designs, manufactures and
markets complete fuelling systems for new vehicles and the aftermarket
conversion of engines from gasoline to compressed natural gas and
liquefied petroleum gas. OMVL has production and distribution
capabilities in Europe, Asia, South America, and Australia.
The Company previously held the other 49% of Juniper, which was
accounted for as a long-term investment using the equity method. After
the transaction, Juniper became a wholly owned subsidiary of the
Company. As a result of this transaction, the Company remeasured
its 49% interest in the net assets and liabilities of Juniper held prior
to the transaction at fair value and recognized a gain of $184, which
is recorded in other income. For the period from April 1, 2010 to
July 2, 2010, the Company recognized a loss of $155 (2010 ▸ $983,
2009 ▸ $910) from investment accounted for by the equity method.
The acquisitions were accounted for as business combinations
using the purchase method. The results of OMVL and the
additional 51% of Juniper have been included in the consolidated
financial statements of the Company from July 2, 2010.
The Company obtained an independent third-party valuation of
inventories, property and equipment, and intangible assets. The final
5 Inventories
Purchased parts
Assembled parts
Work-in-process
Finished goods
Obsolescence provision
$
$
2011
10,494
2,705
3,453
1,349
(1,196)
$
16,805
$
2010
6,636
1,967
782
514
(1,851)
8,048
During the year ended March 31, 2010, the Company recorded a
write-down to net realizable value of approximately nil (2010 ▸ $1,793;
2009 ▸ $132) for obsolescence and scrap. There were no
reversals of write-downs recorded in any year presented.
6 Long-term Investments
Weichai Westport Inc.
2011
5,622
5,622
$
$
$
$
2010
-
-
On July 3, 2010, the Company invested $4.3 million under
an agreement with Weichai Power Co. Ltd. and Hong Kong
Peterson (CNG) Equipment Ltd. to form Weichai Westport Inc.
(“WWI”). The Company has a 35% equity interest in WWI.
fair value of the assets acquired and liabilities assumed are as follows:
From July 3, 2010 to March 31, 2011, the Company
Consideration allocated to:
Total tangible assets, including cash of $4,130
Intangible assets subject to amortization
Goodwill
Total assets acquired
Less: total liabilities assumed and gain on acquisition of
Juniper of $184
Total net assets acquired
Consideration:
Cash
Long-term payable
$
23,531
6,338
7,573
37,442
(11,731)
$
25,711
$
$
17,146
8,565
25,711
recognized income of $997 (2010 ▸ nil), as income from
investment accounted for by the equity method.
7 Other Assets
On October 15, 2010, the Company entered into a Note and Warrant
Purchase Agreement (the “Agreement”) with a private energy
company based in the United States to fund operating and capital
expenditures related to infrastructure development activities.
Under the Agreement, the Company agreed to loan up to
$1,800. The Company will also receive up to 1,427,179 warrants
representing 20% of the current outstanding shares to purchase
common shares at $0.10 per share for a period of five years.
The foreign exchange rate used to translate Euro denominated assets
As at March 31, 2011, the Company loaned the full $1,800 under the
acquired, liabilities assumed and purchase consideration into U.S. dollars
Agreement and received 1,427,179 warrants. The loan bears interest at 12.5%,
was 1.26 based on the July 2, 2010 Bank of Canada closing rate.
payable at the maturity date of October 15, 2012. As at March 31, 2011, the
32 :: Westport Innovations Inc. 2011 Annual Report
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Company had accrued $52 in interest income. Recoverability of the loan will
On July 2, 2010, the Company issued a letter of credit for $10,705
depend on the future success of the counterparty’s operations and cash flows.
(CDN$11,400) as security for the long-term payable to the Sellers [note 4].
The Company has determined that the fair value of the warrants is nominal,
given that the counterparty’s development activities are at an early stage.
11 Long-term Debt
8 Equipment, Furniture and
Leasehold Improvements
2011
Computer equipment
and software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
2010
Computer equipment
and software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
cost
accumulated
amortization
net
book value
$
7,839 $
7,219 $
1,741
29,546
10,088
1,331
19,401
9,180
620
410
10,145
908
$
49,214 $
37,131 $
12,083
$
6,874 $
6,101 $
1,538
20,612
9,415
1,149
16,644
8,432
$
38,439 $
32,326 $
773
389
3,968
983
6,113
As at March 31, 2011, equipment with a cost of $443 (2010 ▸ $446) and
a net book value of $354 (2010 ▸ $393) is held under capital lease.
9 Intangible Assets
Subordinated debenture notes (a)
$
Long-term payable (b)
Capital lease obligation (c)
Current portion
$
2011
14,948
9,919
225
25,092
(15,080)
2010
12,529
-
342
12,871
(136)
$
10,012
$
12,735
a Subordinated debenture notes
On July 3, 2008, the Company completed the sale and issue of 15,000
debenture units of the Company for total gross proceeds of $14,090
(CDN$15,000). Each debenture unit consisted of one unsecured
subordinated debenture note in the principal amount of $1 bearing interest
at 9% per annum and 51 common share purchase warrants exercisable into
common shares of the Company at any time for a period of two years from
the date of issue at CDN$18.73. The Company has the option to redeem the
debentures at any time at 110% of the principal amount. Interest is payable
semi-annually and the debentures mature on July 3, 2011. Of the $14,090
gross proceeds received, the Company assigned $10,742 to the debenture
notes and $3,572 to the warrants based on each instruments’ relative fair
value. The amount assigned to the debenture notes is being accreted to
the principal amount using the effective interest rate of 23% over the term
to maturity, and the warrants are included in other equity instruments.
cost
accumulated
amortization
net
book value
b Long-term payable
2011
Intellectual property
$
4,493 $
4,345 $
Trademarks
Technology
Customer contracts
Non-compete agreement
3,267
2,059
1,970
37
125
190
159
6
$
11,826 $
4,825 $
148
3,142
1,869
1,811
31
7,001
2010
Intellectual property
$
$
4,254 $
3,971 $
4,254 $
3,971 $
283
283
On July 2, 2010, the Company acquired OMVL for $25,711. A portion
of the purchase price amounting to $10,778 (€7,600 euro) is payable
on the third anniversary of the closing date. The difference between
the carrying value of this liability and the principal amount is accreted to
the principal amount using the effective interest rate of 3.72% over the
term to maturity. The amount payable to the Sellers will be paid in full
on maturity and is not subject to any interest payments. The amount
outstanding is denominated in euro, exposing the Company to foreign
exchange changes. The amount is guaranteed to the Sellers by Banca
Intesa S.p.A with a cross guarantee from the Bank of Montreal.
The expected amortization of intangible assets for fiscal year 2012
is $501 and for fiscal year 2013 to 2016 is $357 per year.
c Capital lease obligation
10 Demand Instalment Loan
The Company has a credit facility for maximum borrowings of CDN$20,000
governed by a margin requirement limiting such borrowings to a calculated
amount based on cash and investments held with the creditor. Borrowings
may be drawn in the form of direct borrowings, letters of credit, foreign
exchange forward contracts and overdraft loans. Outstanding amounts
on direct borrowings and overdraft loans drawn under this credit facility
bear interest at the prime rate, and letters of credit bear interest at 1%
per annum. On June 10, 2010, the Company settled its outstanding
demand installment loan. As at March 31, 2011, no amounts are
outstanding as a demand installment loan (March 31, 2010 ▸ $3,244).
The Company has capital lease obligations that have initial
terms of three to five years at interest rates ranging from 2.13%
to 6.17%. The capital lease obligations require the following
minimum annual payments during the respective fiscal years:
2012
2013
2014
Amount representing interest
$
$
135
96
1
229
(4)
225
Westport Innovations Inc. 2011 Annual Report :: 33
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
12 Other Long-term Liabilities
Deferred lease inducements (a)
Deferred revenue (b)
a Deferred lease inducements
2011
164
6,932
$
7,096
$
2010
207
4,982
5,189
$
$
Deferred lease inducements include leasehold improvements and other
costs funded by the lessor and amounts related to lease contracts
with escalating lease payments. The amounts related to leasehold
improvements funded by the lessor are amortized on a straight-line
basis over the term of the lease as a reduction to rent expense. For
lease contracts with escalating lease payments, total rent expense
for the lease term is expensed on a straight-line basis over the lease
term. The difference between amounts expensed and amounts paid is
recorded as an increase or reduction in deferred lease inducements.
b Deferred revenue
The Company receives cash in advance of revenue recognition
criteria being met, including upfront fees, customer deposits, fees for
research and development activities, and extended warranty contracts.
These items are included in deferred revenue and are recognized
into earnings over the contract period as research and development
activities are completed or over the warranty period as applicable.
13 Government Assistance
From time to time, the Company enters into agreements for
financial assistance with government agencies. During the years
ended March 31, 2011, 2010 and 2009, government assistance
of $1,675, $1,474 and $2,463, respectively, was received or
receivable by the Company, which has been recorded as a reduction
of related research and development expenditures [note 17].
Under the terms of an agreement with Industry Canada’s Industrial
Technologies Office (“ITO”), from fiscal 2009 to fiscal 2015, inclusive,
the Company is obligated to pay annual royalties equal to the greater
of $13,900 (CDN$13,500) or 0.33% of the Company’s annual revenue
provided that gross revenue exceeds $13,900 (CDN$13,500) in any
of the aforementioned fiscal years. The royalty payment period may
be extended until the earlier of March 31, 2018 or until cumulative
royalties total $29,100 (CDN$28,200). As at March 31, 2011, $1,392
(2010 ▸ $1,329) in royalties have been paid or are payable of which $1,392
(2010 ▸ $1,329) remains accrued in accounts payable and accrued liabilities.
The Company is also obligated to pay royalties to the Government
of Canada’s Department of Natural Resources equal to 1% of future
revenue from engines for power generators until the earlier of ten years
from the project completion date (August 30, 2004) or when cumulative
royalties total $1,031 (CDN$1,000). As at March 31, 2011, there has
been no revenue from the sales of engines for power generators;
therefore, no royalty payments have been paid or are payable.
14 Share Capital
On August 14, 2008, the Company filed a prospectus in Canada and a
registration statement on Form F-10 with the U.S. Securities and Exchange
34 :: Westport Innovations Inc. 2011 Annual Report
Commission in connection with its initial public offering of 4,500,000 common
shares in the United States at approximately $12.00 per share. Gross proceeds
totaled $54,000 and the Company also incurred share issuance costs of $4,635.
On December 17, 2009, the Company issued 5,462,500 common
shares at a price of $10.50 per share. Gross proceeds totaled $57,356
and the Company incurred share issuance costs of $3,192.
On November 15, 2010, the Company issued 6,957,500 common
shares at a price of $17.50 per share. Gross proceeds totaled
$121,756 and the Company incurred share issue costs of $6,069.
15 Stock Options and Other Stock-based Plans
At the Company’s 2010 annual general meeting, the Company’s
shareholders ratified and approved the Westport Omnibus Plan, and
reserved 2,226,645 common shares under this plan. Under the Westport
Omnibus plan, stock options, RSUs and PSUs may be granted and
are exercisable into common shares of the Company for no additional
consideration. Any employee, contractor, director, or executive officer
of the Company is eligible to participate in the Westport Omnibus Plan.
The Executive and Senior Management Compensation Program sets
out provisions where the RSUs and PSUs (together the “Units”) will
be granted to the Company’s executive management if performance
milestones are achieved as determined at the discretion of the Human
Resources and Compensation Committee of the Company’s Board
of Directors in consultation with the Company’s management.
These performance milestones are focused on achievement of key cash
management, profitability, and revenue growth objectives. Vesting
periods and conditions for each Unit granted pursuant to the Westport
Omnibus Plan are at the discretion of the Board of Directors and may
include time based, share price or other performance targets.
a Share options
The Company grants incentive share options to employees, directors, officers
and consultants. Options are granted with an exercise price of not less than
the market price of the Company’s common shares on the date immediately
prior to the date of grant. The exercise period of the options may not exceed
eight years from the date of grant. Vesting periods of the options are at
the discretion of the Board of Directors and may be based on fixed terms,
achieving performance milestones, or reaching specified share price targets.
A summary of the status of the Company’s share option plan
as of March 31, 2011, 2010 and 2009 and changes during
the years then ended are presented as follows:
2011
2010
2009
shares WAEP*
shares WAEP*
shares WAEP*
1,051,589
$ 8.13
1,136,163
$ 7.32
1,235,799
$ 6.96
-
-
406,262
10.79
39,280
13.73
(472,414)
7.19
(389,580)
6.53
(104,669)
Outstanding,
beginning of year
Granted
Exercised
Cancelled / expired
(17,161)
23.24
(101,256)
15.87
(34,247)
Outstanding,
end of year
Options exercisable,
end of year
562,014
$ 8.46
1,051,589 $ 8.13
1,136,163
$ 7.32
455,206
$ 7.75
550,471
$ 8.44
786,282
$ 7.53
* weighted average exercise price (CDN$)
5.57
7.66
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Stock options are available for issuance under the Westport Omnibus
years and the remainder after three years from the date of the grant. The
Plan and were previously granted under the Company’s Stock Option
impact of market conditions, if any, on compensation expense for these
Plan. During the year ended March 31, 2011, the Company recognized
units is determined at the time of the grant with no adjustment to the
$547 (2010 ▸ $1,363; 2009 ▸ $481) in stock-based compensation related
to stock options. The fair value of the options granted was determined
using the Black-Scholes simulation with the following weighted average
assumptions: expected dividend yield ▸ nil% (2010 ▸ nil%, 2009 ▸ nil%);
expected stock price volatility ▸ nil% (2010 ▸ 78.7%, 2009 ▸ 61.0%);
risk free interest rate ▸ nil% (2010 ▸ 1.60%, 2009 ▸ 2.74%); expected
life of options ▸ nil years (2010 ▸ 3.3 years, 2009 ▸ 4.0 years). The
weighted average grant date fair value was nil for options granted
for the year ended March 31, 2011 (2010 ▸ $5.60, 2009 ▸ $6.45).
exercise price
range (CDN$)
$ 3.22 ▸ 3.96
4.13 ▸ 4.87
5.25 ▸ 5.99
6.13 ▸ 9.14
10.33 ▸ 11.11
14.90 ▸ 16.50
$ 3.22 ▸ 16.50
outstanding,
March 31,
2011
WARCL
*
WAEP
**
exercisable,
March 31,
2011
WAEP
**
16,068
63,279
168,190
63,058
200,709
50,710
2.9
3.0
2.0
2.1
3.8
4.7
$ 3.62
8,926
$
3.34
4.44
5.31
8.01
11.07
15.69
63,279
168,190
63,058
117,710
34,043
4.44
5.31
8.01
11.04
15.29
562,014
3.02
$ 8.46
455,206
$
7.75
* weighted average remaining contractual life (years)
** weighted average exercise price (CDN$)
compensation expense for the actual results of the market condition.
The fair value of all other Units was determined based on
the market price of the underlying shares on the date of
grant. Compensation expense, net of estimated forfeitures, is
recognized in results from operations over the vesting period.
A summary of the status of the Units issued under the Westport Omnibus
Plan and the former Amended and Restated Unit Plan, as of March 31, 2011,
2010 and 2009, and changes during the years then ended are as follows:
Outstanding, March 31, 2008
Units exercised
Units granted
Units cancelled
Outstanding, March 31, 2009
Units exercised
Units granted
Units cancelled
Outstanding, March 31, 2010
Units exercised
Units granted
Outstanding, March 31, 2011
units
1,082,991
(3,947)
667,815
(16,889)
1,729,970
(601,855)
105,084
(38,286)
1,194,913
(241,825)
424,149
1,377,237
b Employee share purchase plan
The Company has an employee share purchase plan (“ESPP”) in which
As at March 31, 2011, 541,534 Units are vested and exercisable.
full-time employees of the Company are eligible to participate. Eligible
Stock-based compensation associated with the Unit plans and the
employees may make contributions to the ESPP of up to 10% of their
stock option plan is included in operating expenses as follows:
regular base pay. The Company contributes up to a maximum combined
total of 5% of the employee’s regular base pay to the employee’s RRSP and/
or ESPP. Shares contributed to the ESPP are purchased by the Company
on a semi-monthly basis in the open market. Shares purchased on behalf
of the employee with the employee’s contribution vest with the employee
immediately. Shares purchased with the Company’s contribution vest on
December 31st of each year, so long as the employee is still employed
with the Company. The ESPP was cancelled on March 31, 2011.
c Share units
The value assigned to issued Units and the amounts accrued are
recorded as other equity instruments. As Units are exercised and
the underlying shares are issued from treasury of the Company, the
value is reclassified to share capital. During the year ended March 31,
2011, the Company recognized $4,376 (2010 ▸ $3,167; 2009 ▸ $1,493)
of stock-based compensation associated with the Westport
Omnibus Plan and the former Amended and Restated Unit Plan.
Of the Units granted during the year ended March 31, 2011, 166,420 Units
were subject to market as well as service conditions. The fair value of these
Units was determined using a Monte-Carlo simulation using the following
weighted average assumptions: expected dividend yield ▸ nil%; expected
stock price volatility ▸ 83.48%; and risk free interest rate ▸ 1.52%. The
valuation model determined the grant date fair value based on assumptions
about the likelihood of the Company achieving different payout factors as
driven by the market conditions. Payout factors are determined based
upon the absolute stock price two years after the grant date and the stock
price relative to a Synthetic Clean Tech index of comparative companies
two years after the grant date. One-half of these Units vest after two
Research and development
$
General and administrative
Sales and marketing
2011
627 $
2010
598 $
2,958
1,338
3,217
715
$
4,923 $
4,530 $
2009
248
1,283
443
1,974
16 Other Equity Instruments
Value assigned to Share Units [note 15(c)]
Value assigned to warrants
2011
4,205
$
-
4,205
$
2010
3,068
6,757
9,825
$
$
On April 14, 2010, 790,614 warrants issued to ITO with a fair
value of $3,209 (CDN$ 4,000) were exercised. 771,428 warrants
with an assigned value of $3,572 and 46,118 broker warrants with
an assigned value of $266 were issued as part of the debenture
units net of transaction costs of $290 [note 11(a)]. On July 3,
2010, all unexercised warrants and broker warrants expired.
Westport Innovations Inc. 2011 Annual Report :: 35
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
17 Research and Development Expenses
Research and development expenses are recorded net of program
funding received or receivable. For the years ending March 31, 2011,
2010 and 2009, the following research and development expenses
had been incurred and program funding received or receivable:
2011
2010
2009
Research and development
expenses
$
36,338
$
27,546
$
28,024
Program funding [note 13]
Research and development $
(1,675)
(1,333)
(1,856)
34,663
$
26,213
$
26,168
18 Income Taxes
a The Company’s income tax recovery differs from that calculated
by applying the combined Canadian federal and provincial statutory
income tax rates for manufacturing and processing companies
of 28.0% (2010 ▸ 29.6%; 2009 ▸ 30.8%) as follows:
Loss before income taxes
2011
$ 24,851
2010
$ 19,177
2009
$ 10,434
Expected income tax recovery
$
6,958
$
5,676 $
3,214
Reduction (increase) in income taxes
resulting from:
Non-deductible interest on long-term
debt and amortization of discount
Non-deductible stock-based
compensation
Non-deductible expenses
Withholding taxes
Change in enacted rates
Foreign tax rate differences, foreign
exchange and other adjustments
(558)
(384)
(112)
(1,379)
(1,341)
(42)
(303)
24
(33)
(194)
(951)
(3,324)
(1,206)
(608)
(54)
(193)
(2,076)
(1,414)
(4,824)
Change in valuation allowance
(11,023)
(10,008)
$
(9,647) $
(8,441) $
(6,067)
b The tax effects of the significant temporary differences that comprise
tax assets and liabilities at March 31, 2011 and 2010 are as follows:
Future tax assets:
Net operating loss carry forwards
$ 41,115 $ 27,342
Intangible assets
982
1,580
2011
2010
Equipment, furniture and leasehold
improvements
Financing and share issuance costs
Warranty liability
Deferred revenue
Provisions
Other
Total gross future tax assets
Valuation allowance
Total future tax asset
Allocated as follows:
Current future tax assets
Long-term future tax asset
Total future tax asset
1,181
2,472
6,686
3,092
1,756
379
1,330
1,783
7,368
1,950
-
85
57,663
41,438
(48,065)
(32,368)
$
9,598 $
9,070
$
6,084 $
4,990
3,514
4,080
$
9,598 $
9,070
36 :: Westport Innovations Inc. 2011 Annual Report
In determining the valuation allowance, management considers
whether it is more likely than not that some portion or all of the future
tax assets will not be realized. The ultimate realization of future tax
assets is dependent on the generation of income during the future
periods in which those temporary differences become deductible.
Since evidence does not exist that future income tax assets will
be fully realized, a valuation allowance has been recorded.
Current tax expense for the year ended March 31, 2011 was $8,886
(2010 ▸ $9,663, 2009 ▸ $2,682) of which $8,954 is payable in the United
States (2010 ▸ $9,462, 2009 ▸ $2,505), $372 is recoverable in Italy
(2010 ▸ nil, 2009 ▸ nil) and $304 (2010 ▸ $201, 2009 ▸ $374) is payable
in Canada. Future income tax expense of $272 (2010 ▸ recovery of
$1,312; 2009 ▸ $1,370) relates to temporary differences in the United
States. Future tax expense of $32 (2010 ▸ $90; 2009 ▸ $2,015) relates
to temporary differences in Canada. Future tax expense of $457
(2010 ▸ nil, 2009 ▸ nil) relates to temporary differences in Italy.
c The Company has non-capital loss carry forwards in Canada available
to offset future taxable income, which expire as follows:
2014
2015
2026
2027
2028
2029
2030
2031
$
2,787
2,587
2,428
14,100
20,508
27,577
43,523
44,087
$
157,597
The Company has non-capital loss carry forwards in the United
States available to offset future taxable income of $914 which
expire in 2029. The Company also has non-capital loss carry
forwards in Italy available to offset future taxable income. Of
these losses, $1,253 expire in 2015 and $1,020 expire in 2016.
19 Investment in Joint Ventures
Cummins Westport Inc. (a)
BTIC Westport Inc. (b)
a Cummins Westport Inc.
2011
14,770 $
151
2010
12,771
365
14,921 $
13,136
$
$
The Company entered into a joint venture with Cummins on March 7,
2001. The joint venture, CWI, was formed to explore a range of
product and technology opportunities using natural gas as the
primary fuel. The Company provides personnel, financing and key
technologies for the venture, while Cummins provides an existing
product line, manufacturing, product distribution and customer service
functions, as well as key management and engineering personnel.
From inception until December 31, 2003, the Company was
responsible for all capital contributions to fund operations. Initially
and to December 31, 2003, the Company owned 100% of
the common shares and Cummins owned 100% of the non-
participating preferred shares, which were convertible into common
shares for no consideration at the option of Cummins.
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
On December 16, 2003, the Company and Cummins amended the
joint venture agreement to have CWI focus on and develop markets
for alternative fuel engines. In addition, the two companies signed a
Technology Partnership Agreement that creates a flexible arrangement
for future technology development between Cummins and the Company.
Under the terms of the amended joint venture agreement, Cummins
exercised the conversion feature of the preferred shares effective
January 1, 2004. However, the Company remained responsible for
funding the profit and loss of CWI through CWI’s fiscal 2004 year for the
period January 1 to December 31, 2004. Based on its economic interest
in CWI, the Company continued to consolidate 100% of the results of
operations from CWI until December 31, 2004. Cummins has agreed to
manufacture engines for CWI’s business and transfer the engines to CWI
at cost. In consideration for this service, CWI agreed to pay Cummins a
Operations
Product revenue
Parts revenue
Cost of revenue and expenses:
Cost of revenue
Research and development
General and administrative
Sales and marketing
Foreign exchange
Bank charges, interest & other
2011
$ 84,612
2010
$ 87,811
2009
$ 82,475
26,675
111,287
24,007
111,818
16,625
99,100
66,989
10,043
1,181
7,675
160
299
73,059
73,048
7,740
1,031
7,719
(345)
254
7,327
1,243
6,393
408
156
86,347
89,458
88,575
Income before undernoted
24,940
22,360
10,525
technology royalty access fee equal to 2.75% to a cumulative maximum of
Interest and investment income
284
120
810
$10,400. As at March 31, 2011, CWI has paid royalties totaling $9,800.
Income before income taxes
25,224
22,480
11,335
Subsequent to December 31, 2004, Cummins shares equally
in the profits and losses of CWI. However, the Company has
determined that CWI is a VIE and the Company is the primary
beneficiary. The Company continues to consolidate CWI.
Income tax recovery (expense):
Current
Future
(8,954)
(272)
(9,226)
(9,461)
1,311
(8,150)
(2,513)
(1,344)
(3,857)
CWI has provided a loan to Cummins under a demand loan agreement.
Income for the year
15,998
14,330
7,478
The loan receivable bears interest monthly at a rate equal to the Bank of
Canada prime corporate paper one-month rate in effect on the last day of
each month. As at March 31, 2011, this rate was 1.07%. All outstanding
interest is payable in United States dollars on or before December 15, 2011.
Interest begins accruing on the date in which monies are advanced under
the loan agreement. The loan is uncollateralized and is renewed annually.
Assets, liabilities, revenue and expenses of CWI included
in the consolidated financial statements of the Company
as of and for the periods presented are as follows:
Assets
Current assets:
2011
2010
Cash and cash equivalents
$
2,291 $
3,176
Short-term investments
Accounts receivable
Loan receivable
Prepaid expenses
Current portion of future income tax asset
Future income tax asset
14,010
1,016
14,200
100
5,288
12,704
2,620
13,295
70
4,990
36,905
36,855
3,511
4,080
Equipment, furniture & leasehold improvements
765
350
Income attributable to
Joint Venture Partner
(7,999)
(7,165)
(3,739)
Income attributable to the Company $
7,999 $
7,165 $
3,739
b BTIC Westport Inc.
On July 21, 2006, the Company and Beijing Tianhai Industry Co. Ltd.
(“BTIC”) of Beijing, China formed BWI to market liquefied natural
gas (“LNG”) fuel tanks for vehicles. Through the 50:50 joint venture
agreement and related license and supply agreements, BTIC and Westport
share equally in the profits on products developed and sold by the joint
venture. Headquartered in Beijing, China, BWI sells tanks for installation
on any vehicle, regardless of the natural gas engine manufacturer.
The consolidated financial statements include 100% of the assets,
liabilities, revenue, and expenses of BWI since the Company has
determined that BWI is a variable interest entity and that the Company
is the primary beneficiary. Accordingly, the Company consolidates
BWI. For the year ended March 31, 2011, the net loss from BWI
attributable to BTIC was $214 (2010 ▸ $94, 2009 ▸ net income of $170).
Liabilities
Current liabilities:
$ 41,181 $ 41,285
20 Commitments and Contingencies
2011
2010
The Company has obligations under operating lease arrangements that require
the following minimum annual payments during the respective fiscal years:
Accounts payable and accrued liabilities
$
1,658 $
4,617
Deferred revenue
Current portion of warranty liability
Long-term liabilities:
Warranty liability
Deferred revenue
1,797
11,997
15,452
633
11,443
16,693
4,724
5,453
7,738
3,720
10,177
11,458
2012
2013
2014
2015
2016
$
1,563
1,220
930
217
27
$
3,957
$ 25,629 $ 28,151
For the year ended March 31, 2011, the Company incurred operating
lease expense of $1,599 (2010 ▸ $1,459; 2009 ▸ $1,152).
Westport Innovations Inc. 2011 Annual Report :: 37
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
21 Segmented Information
The Company’s business operates in three reportable operating segments:
:: CWI which serves the medium- to heavy-duty engine markets. The fuel
for CWI engines is typically carried on vehicles as compressed natural gas
or liquefied natural gas;
:: Juniper which designs, produces and sells high-performance alternative fuel
engines primarily for the sub-5-litre class initially targeting the global CNG
and liquefied petroleum gas industrial and light-duty automotive market; and
:: Other which includes Westport HD and other corporate costs.
Westport HD includes the heavy-duty engine markets and currently
offers a 15-litre LNG engine for the heavy-duty trucking market.
Westport HD is our proprietary development platform, engaged
in the engineering, design and marketing of natural-gas enabling
technology for the heavy-duty diesel engine and truck market.
These reporting segments offer different products and services and are
managed separately as each business requires different technology and
marketing strategies.
The accounting policies for the reportable segments are consistent with
those described in [note 2]. The Company evaluates segment performance
based on the net operating income (loss) which is before income taxes and
does not include depreciation and amortization, foreign exchange gains and
losses, bank charges, interest and other expenses, interest and other income,
and gain on sale of long-term investments. The Company did not record any
intersegment sales or transfer for the years ended March 31, 2011 and 2010.
As at March 31, 2011 total goodwill of $8,202 (2010 ▸ nil) was
allocated to the Juniper segment. As at March 31, 2011 total
long-term investments of $5,622 (2010 ▸ nil) was allocated to
the Other segment. Total assets are allocated as follows:
CWI
Juniper
Other
$
$
2011
41,181
35,168
197,037
2010
41,285
-
112,405
$
273,386
$
153,690
Capital assets and goodwill information by geographic area:
Italy
Canada
United States
China
2011
$
12,755 $
6,701
787
42
2010
-
5,648
400
65
$
20,285
$
6,113
22 Financial Instruments
a Financial risk management
The Company has exposure to liquidity risk, credit risk,
foreign currency risk, and interest rate risk.
2011
2010
2009
b Liquidity risk
$ 111,287
$ 111,818
$ 99,100
obligations as they are due. The Company has sustained losses and negative
Liquidity risk is the risk that the Company will not be able to meet its financial
Revenue
CWI
Juniper
Other
Net operating income (loss)
CWI
Juniper
Other
Depreciation and amortization
CWI
Juniper
Other
23,713
13,062
-
9,835
10,111
$ 148,062
$ 121,653
$ 109,211
$ 25,399
$ 22,360
$ 11,089
(2,476)
(38,377)
(15,454)
(80)
(1,305)
(2,211)
(3,596)
-
(38,479)
(16,119)
(31,537)
(20,448)
(60)
-
(1,897)
(1,957)
(38)
-
(1,711)
(1,749)
Income before undernoted
(19,050)
(18,076)
(22,197)
Other income (expense), net
(5,801)
(1,101)
11,763
Income before income taxes
$ (24,851) $ (19,177) $ (10,434)
Capital expenditures
CWI
Juniper
Other
$
442
211
2,960
$
53
$
250
-
151
204
-
5,131
$
5,282
$
3,613
$
For the year ended March 31, 2011, 60% (2010 ▸ 67%;
2009 ▸ 84%) of the Company’s revenue was from sales in the
Americas, 15% (2010 ▸ 14%; 2009 ▸ 4%) from sales in Asia, and
25% (2010 ▸ 19%; 2009 ▸ 12%) from sales elsewhere.
38 :: Westport Innovations Inc. 2011 Annual Report
-
-
cash flows from operations since inception. At March 31, 2011, the Company
has $180,303 of cash, cash equivalents, and short-term investments.
The following are the contractual maturities of
financial obligations as at March 31, 2011:
carrying
amount
contractual
cash flows
< 1
year
1–3
years
4–5
years
> 5
years
Accounts
payable and
accrued
liabilities
Short-term
debt (i)
Subordinated
debenture
notes (ii)
Other long-
term debt (iii)
Operating
lease
commitments
Royalty
payments (iv)
$ 24,765
$ 24,765
$ 24,765
$
208
208
208
14,948
15,818
15,818
$
-
-
-
10,144
11,002
133
10,869
$
-
-
-
-
-
3,957
1,563
2,150
244
1,392
26,815
1,392
2,785
22,638
-
-
-
-
-
-
$ 51,457
$ 82,565
$ 43,879
$ 15,804
$ 22,882
$
-
i Loan repayable to Centrobanca-L46 in May 2011 and carries a fixed interest rate of 1.012%
Includes interest at 9%
ii
iii See [note 11]
iv From fiscal 2011 to 2015, inclusive, the Company is obligated to pay annual royalties equal to the
greater of CDN$1,350 or 0.33% of the Company’s gross annual revenue from all sources, provided
that gross revenue exceeds CDN$13,500 in any aforementioned fiscal year, up to a maximum of
CDN$28,189. The Company has assumed the minimum required payments. CWI is also obligated pay
annual royalties of 2.75% of engine revenue to Cummins up to a cumulative maximum of $10,400. The
Company has a remaining obligation of $527.
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
The Company expects to be able to meet its future financial obligations
with its current source of funds. However, there are uncertainties
related to the timing of the Company’s cash inflows and outflows,
specifically around the sale of inventories and amounts required for
market and product development costs. These uncertainties include
the volume of commercial sales related to its natural gas engines and
fuel system products and the development of markets for, and customer
acceptance of, these products. As a result, the Company may need to
seek additional equity or arrange debt financing, which could include
additional lines of credit, in order to meet its financial obligations.
c Credit risk
d Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of
financial instruments will fluctuate because of changes in foreign currency
exchange rates. The Company conducts a significant portion of its business
activities in foreign currencies, primarily the United States dollar (“U.S.”)
and the Euro (“Euro”). Cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, short-term debt, and long-term debt
that are denominated in foreign currencies will be affected by changes in the
exchange rate between the Canadian dollar and these foreign currencies.
The Company’s objective in managing its foreign currency risk is
to minimize its net exposures to foreign currency cash flows by
transacting with third parties in U.S. dollars and Canadian dollars to
Credit risk arises from the potential that a counterparty to a financial
the maximum extent possible and practical. The Company attempts
instrument fails to meet its contractual obligations and arises
to limit its exposure to foreign currency risk by holding a combination
principally from the Company’s cash and cash equivalents, short-term
of Canadian and U.S. denominated cash and cash equivalents and
investments, accounts receivable and loan receivable. The Company
short-term investments based on forecasted Canadian or U.S. dollar
manages credit risk associated with cash and cash equivalents and
net expenditures. The Company currently does not enter into any
short-term investments by regularly consulting with its current bank
forward foreign currency contracts to further limit its exposure.
and investment advisors and investing primarily in liquid short-term
paper issued by Schedule 1 Canadian banks, R1 rated companies
and governments. The Company monitors its portfolio, and its policy
is to diversify its investments to manage this potential risk.
The Company is also exposed to credit risk with respect to uncertainties
as to timing and amount of collectability of accounts receivable and
loans receivable. As at March 31, 2011, 85% (2010 ▸ 60%) of accounts
receivable relates to customer receivables, 8% (2010 ▸ 11%) relates to
government grants receivable and 7% (2010 ▸ 29%) relates to amounts
due from partners and indirect and value added taxes receivable. The
loan receivable in current assets is due from Cummins Inc., a large U.S.
based engine manufacturer and the Company’s joint venture partner. The
Company is also exposed to credit risk on an amount receivable from a
private energy company [note 7]. In order to minimize the risk of loss for
customer receivables, the Company’s extension of credit to customers
involves review and approval by senior management as well as progress
payments as contracts are executed. Most sales are invoiced with payment
terms in the range of 30 days to 90 days. The Company reviews its
customer receivable accounts and regularly recognizes an allowance for
doubtful receivables as soon as the account is determined not to be fully
collectible. Estimates for allowance for doubtful debts are determined by
a customer-by-customer evaluation of collectability at each balance sheet
The Company’s functional currency is the Canadian dollar.
The U.S. dollar and the Euro carrying amount of financial
instruments subject to exposure to foreign currency risk in the
consolidated balance sheet at March 31, 2011 is as follows:
Cash and cash equivalents
Short-term investments
Accounts receivable
Other assets
Accounts payable
Cash and cash equivalents
Long-term debt
U.S. dollars
109,872
$
25,841
1,704
1,852
1,254
Euros
201
6,998
If foreign exchange rates on March 31, 2011 had changed by 25 basis points,
with all other variables held constant, net loss for the year ended March 31,
2011 would have changed by $345 and $17 for U.S. dollar denominated
and Euro denominated financial instruments, respectively. The Company’s
exposure to currencies other than U.S. dollars and Euros is not material.
reporting date, taking into consideration past due amounts and any available
e Interest rate risk
relevant information on the customers’ liquidity and financial position.
Interest rate risk is the risk that the fair value of future cash flows of a
The carrying amount of cash and cash equivalents, short-term investments,
financial instrument will fluctuate because of changes in market interest
accounts receivable, loan receivable and other assets of $212,289 at
rates. The Company is subject to interest rate risk on its loan receivable.
March 31, 2011 represents the Company’s maximum credit exposure.
The Company limits its exposure to interest rate risk by continually
monitoring, and adjusting portfolio duration to align to forecasted cash
requirements and anticipated changes in interest rates. The company’s
interest bearing indebtedness have fixed rates of interest. Accordingly,
the Company is not exposed to interest rate risk as its liabilities.
If interest rates for the year ended March 31, 2011 had changed by
50 basis points, with all other variables held constant, net loss for
the year ended March 31, 2011 would have changed by $12.
Westport Innovations Inc. 2011 Annual Report :: 39
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
22 Financial Instruments (continued)
f Fair value of financial instruments
The carrying amounts reported in the balance sheets for cash and
cash equivalents, accounts receivable, loan receivable and accounts
payable and accrued liabilities approximate their fair values due
to the short-term period to maturity of these instruments.
The Company’s short-term investments are recorded at fair value. The
long-term investment represents our interest in the Weichai Westport
Inc. joint venture, which is accounted for using the equity method.
The carrying value reported in the balance sheets for obligations
under capital lease, which is based upon discounted cash flows,
approximates its fair value. The fair values of the Company’s demand
installment loan, and short-term debt are not materially different
from its carrying value based on market rates of interest.
Other assets consist of a note purchased by a private energy
company [note 7]. It is recorded at the outstanding principal amount
plus accrued interest. Given that the company is private, there is a
lack of observable market data. However, the Company believes
that the carrying value of the note approximates its fair value as the
interest rate of 12.5% represents a market-based rate that would
be demanded for a note with similar terms and conditions.
The Company also received warrants to purchase common shares
under the Note and Warrant Purchase Agreement. As the shares
are privately held, there is a lack of observable market data and the
fair value of the common shares is not readily determinable. The
Company believes the fair value of the warrants is nominal given the
counterparty’s development activities are still at an early stage.
The carrying value reported in the balance sheet for the subordinated
debenture notes [note 11(a)] is recorded at amortized cost using the effective
interest rate method, and the gross proceeds have been allocated between
debt and equity based on the relative fair values of the subordinated
debenture notes and the warrants on the issue date. As at March 31,
2011, the fair value of the subordinated debenture notes is higher than
its carrying value by $842 based on a market interest rate of 14.00%.
The carrying value reported in the balance sheet for other long-term
debt is also recorded at amortized cost using the effective interest rate
method. It is being accreted to the gross proceeds of Euro 7.6 million that
is payable to OMVL on July 2, 2013 at the effective interest rate of 3.65%.
As at March 31, 2011, the fair value of the long-term debt is higher than
its carrying value by $2,706 based on a market interest rate of 2.35%.
The Company categorizes its fair value measurements for items measured
at fair value on a recurring basis into three categories as follows:
Level 1
Unadjusted quoted prices in active markets
for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3
Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
40 :: Westport Innovations Inc. 2011 Annual Report
When available, the Company uses quoted market prices to determine
fair value and classify such items in Level 1. When necessary, Level
2 valuations are performed based on quoted market prices for similar
instruments in active markets and/or model−derived valuations with
inputs that are observable in active markets. Level 3 valuations are
undertaken in the absence of reliable Level 1 or Level 2 information.
As at March 31, 2011, cash and cash equivalents and short-term investments
are measured at fair value on a recurring basis and are included in Level 1.
23 Management of Capital
As at March 31, 2011, the Company’s capital is composed of share
capital, its $20,627 (CDN$20,000) line of credit with a Schedule 1
Canadian bank, $14,090 (CDN$15,000) in debenture units, the
primary terms of which are described in [note 11(a)] and $10,778
(€7,600 euro) long term debt payable as described in [note 11(b)].
The Company’s objectives when managing capital are as follows:
::
::
to safeguard the entity’s ability to continue as a going
concern such that it can continue to provide returns for
shareholders and benefits for other stakeholders;
to maintain sufficient cash and cash equivalents on hand to service debt
payments as they come due and to meet externally imposed capital
requirements (the Company must maintain cash and cash equivalents
and short-term investments of at least 1.5 times the amount drawn
against its line of credit and outstanding letters of credit); and
::
to have sufficient cash, cash equivalents, short-term
investments and available for sale marketable securities
on hand to fund the Company’s business plans.
The Company’s primary uses of capital are to finance product development,
market development, working capital, capital expenditures, and operating
losses. The Company currently funds these requirements from the proceeds
from offerings of equity or debt securities, internally generated cash flows,
primarily from its 50% share of CWI and non-CWI revenues, amounts
drawn against its line of credit, and government or partner funding.
There were no changes to the Company’s approach to capital
management during the year ended March 31, 2011.
24 Reconciliation to United States Generally
Accepted Accounting Standards
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada (“Canadian
GAAP”), which differ in certain respects with accounting principles
generally accepted in the United States (“U.S. GAAP”) as follows:
a Debt issuance costs and the effective interest method
Under Canadian GAAP, debt issuance costs are amortized using
the using the effective interest method under Canadian GAAP
and are classified as reductions of the carrying value of the debt
to which it relates. Under U.S. GAAP, debt issuance costs are
presented as deferred charges and are amortized using the effective
interest method. Accordingly, unamortized financing costs of $130
(2010 ▸ $529) relating to the issuance of debenture units, which are
deducted against the liability, would be presented as an asset.
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
Additional information about the share units issued under the Westport
Omnibus Plan and former amended Share Unit Plan are as follows:
b Investments
Under Canadian GAAP and U.S. GAAP, mark-to-market adjustments
on available for sale securities result in future income tax expense or
recovery and, for the Company, a corresponding change in the valuation
allowance against related future tax assets. The tax expense or recovery
is included in accumulated other comprehensive income (“AOCI”) until
the shares are sold at which time the tax expense or recovery will be
included in net loss. For Canadian GAAP, the corresponding change in
the future income tax valuation allowance is recognized in net loss for
the period, but under U.S. GAAP, the change in valuation allowance
Unvested, March 31, 2008
Units granted
Units vested
Units cancelled
would be recognized in other comprehensive income. Accordingly,
Unvested, March 31, 2009
for U.S. GAAP purposes, future income tax expense for the year
ended March 31, 2010 and 2009 of $49 and $1,928, respectively,
recognized under Canadian GAAP would not be recognized.
For Canadian and U.S. GAAP purposes, the cost and the related
amounts included in AOCI related to securities sold are reclassified to
net loss based on weighted average amounts of the shares sold.
Units granted
Units vested
Units cancelled
Unvested, March 31, 2010
Units granted
Units vested
Units cancelled
units
528,570
667,815
(47,087)
(16,888)
1,132,410
105,084
(186,790)
(38,286)
1,012,418
424,149
(548,733)
(52,131)
weighted
average grant
date fair value
(CDN$)
6.69
9.01
8.09
8.29
8.61
9.10
10.89
10.91
8.16
22.78
7.58
13.64
15.62
c Acquired in-process research and development costs
Unvested, March 31, 2011
835,703 $
Under Canadian GAAP, acquired in-process research and development
The aggregate intrinsic value of the Company’s stock option awards
costs are capitalized and amortized. For U.S. GAAP purposes,
such in-process research and development costs are expensed
immediately if there is no alternative use for the related research and
development. Accordingly, amortization of in-process research and
development recorded under Canadian GAAP for the years ended
March 31, 2011, 2010 and 2009 of $141, $129 and $128, respectively,
would not be recognized under U.S. GAAP. As at March 31, 2011,
the carrying value of intellectual property would be reduced by $142
(2010 ▸ $283) with a corresponding increase in accumulated deficit.
d Stock-based compensation
As described in [note 15], the Company has granted stock options to certain
directors, consultants, and employees. On adoption of standards requiring
stock options to be recognized at fair value, the Company recognized a
cumulative adjustment to accumulated deficit for stock-based compensation
and share units at March 31, 2011 in Canadian dollars are as follows:
Stock options:
Outstanding
Exercisable
Share units:
Outstanding
Exercisable
2011
2010
$
7,187
$
6,143
9,165
4,696
$
29,266
$
19,966
11,508
3,049
The total intrinsic value of options and share units exercised for the year
ended March 31, 2011 was $9,741 (CDN$9,445). As at March 31, 2011,
$11,568 (CDN$11,216) of compensation cost relating to share-based
payment awards has yet to be recognized in results from operations
and will be recognized over a weighted average period of four years.
related to stock options granted to employees on or after April 1, 2002.
e Income taxes
For U.S. GAAP purposes, the Company changed its accounting
policy for recognizing stock-based compensation from
the intrinsic value method on April 1, 2004 but recognized
stock based compensation expense prospectively.
Accordingly, on adoption of the fair value method for U.S. GAAP
purposes, adjustments to accumulated deficit of $1,857, share capital
of $51 and additional paid in capital of $1,806 recognized for Canadian
GAAP purposes are not recognized for U.S. GAAP purposes. In
addition, for U.S. GAAP purposes in years prior to April 1, 2002, the
Company recognized stock-based compensation of $1,569 relating
to stock options issued to non-employees prior to April 1, 2002.
Under both Canadian and U.S. GAAP, future income tax assets and
liabilities are measured using the income tax rates and income tax laws
that, at the balance sheet date, are expected to apply when the assets
are realized or the liabilities are settled. In Canada, announcements of
changes in income tax rates and tax laws by the government can have
the effect of being substantially enacted at the balance sheet date even
though they are not yet proclaimed into law. When persuasive evidence
exists that the government is able and committed to enacting proposed
changes in the foreseeable future, the substantively enacted rate is used
to measure the future tax assets and liabilities. Under U.S. GAAP, only
the income tax rates and income tax laws enacted at the balance sheet
date are used to measure the future income tax assets and liabilities. For
the years ended March 31, 2011, 2010, and 2009, enacted rates for U.S.
GAAP purposes were equal to rates used for Canadian GAAP purposes.
Westport Innovations Inc. 2011 Annual Report :: 41
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
24 Reconciliation to United States Generally
Accepted Accounting Standards (continued)
e Income taxes (continued)
Income tax recovery (expense) consists of:
In Canada and the United States, if the Company utilizes
tax loss carryforwards in the future, those losses may be
challenged in the year they are used even though the year
in which they were incurred is barred by statute.
net income (loss) before
taxes and Joint Venture
Partners’ share of
net income from joint
ventures
income tax recovery (expense)
current
deferred
total
f Effect of U.S. GAAP differences:
The effect of the previously discussed accounting differences on total
assets, total liabilities and shareholders’ equity, net loss, comprehensive
loss, and loss per share under U.S. GAAP are as follows:
Year ended
March 31, 2011:
Canada
United States
Italy
Other
Year ended
March 31, 2010:
$ (46,103) $
(304) $
(32) $
(336)
21,633
1,015
(1,396)
(8,954)
372
-
(272)
(457)
-
(9,226)
(85)
-
$ (24,851) $
(8,886) $
(761) $
(9,647)
Canada
$ (39,426)
United States
Other
20,774
(525)
(201)
(9,462)
-
(90)
1,312
-
(291)
(8,150)
-
$ (19,177) $
(9,663) $
1,222
$
(8,441)
Year ended
March 31, 2009:
Canada
$ (28,259) $
(374) $
(2,015) $
(2,389)
United States
17,451
(2,505)
(1,370)
(3,875)
Other
374
197
-
197
$ (10,434) $
(2,682) $
(3,385) $
(6,067)
For U.S. GAAP purposes, the Company recognizes the benefit of
tax positions when it is more likely than not that a tax position will be
sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. A
tax position that meets the more-likely-than-not recognition threshold is
measured to determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount of benefit
that is greater than 50 percent likely of being realized upon settlement.
For all periods presented, there is no difference between Canadian
and U.S. GAAP as the Company does not believe that any income tax
positions taken in its filings are subject to material uncertainty if reviewed
by the Canada Revenue Agency, Internal Revenue Service or by other
tax authorities in jurisdictions in which the Company operates. In cases
where the Company is charged interest and penalties on uncertain tax
positions that do not meet the recognition criteria, the Company includes
these in interest expense and other operating expenses, respectively.
The following is a summary of the tax years that remain
subject to examination by tax jurisdiction:
Canada
United States
Germany
China
Italy
Fiscal year 2004 to 2011
Fiscal year 2005 to 2011
Fiscal year 2003 to 2011
Fiscal year 2007 to 2011
Fiscal year 2006 to 2011
Total assets, Canadian GAAP
Difference in accounting for:
Intellectual property [note 24(c)]
Unamortized financing costs [note 24(a)]
Total assets, U.S. GAAP
Total liabilities, Canadian GAAP
Difference in accounting for:
Unamortized financing costs [note 24(a)]
Total liabilities, U.S. GAAP
Shareholders’ equity, Canadian GAAP
Difference in accounting for:
2011
273,386
$
2010
153,690
(142)
130
273,374
77,237
130
77,367
196,149
$
$
$
$
(283)
529
153,936
56,979
529
57,508
96,711
$
$
$
$
$
Intellectual property [note 24(c)]
(142)
(283)
Shareholders' equity, U.S. GAAP
$
196,007
$
96,428
Net loss attributable to the
Company, Canadian GAAP
Tax recovery on realized and
unrealized gain on available for
sale securities [note 24(b)]
Amortization of intellectual
property [note 24(c)]
Net loss attributable to the
Company, U.S. GAAP
Other comprehensive income
(loss) attributed to the Company,
Canadian GAAP
Tax expense on realized and
unrealized gain on available for
sale securities [note 24(b)]
Other comprehensive income
(loss) attributed to the Company,
U.S. GAAP
Comprehensive loss attributed to
the Company , U.S. GAAP
Basic and diluted loss per share,
U.S. GAAP
2011
2010
2009
$ (42,283) $ (34,689) $ (20,410)
-
49
1,928
141
129
128
(42,142)
(34,511)
(18,354)
7,414
14,087
(25,347)
-
(49)
(1,928)
7,414
14,038
(27,275)
$ (34,728) $ (20,473) $ (45,629)
$
(1.00) $
(1.01) $
(0.61)
There are no differences between Canadian GAAP and U.S. GAAP in total
cash flows from operations, investments and financing presented in the
consolidated statement of cash flows in any of the years presented.
42 :: Westport Innovations Inc. 2011 Annual Report
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
Notes to Consolidated Financial Statements
g Additional financial information and
disclosures required under U.S. GAAP
i Accounts receivable
h Adoption of new accounting procedures
Variable interest entities
In June 2009, the FASB issued a new standard ASC No. 810-10,
A summary of the components of accounts receivable is as follows:
Consolidation, which amends accounting standards for determining
2011
Customer trade receivable
$
14,289 $
Government funding receivable
Due from joint venture partner and
other receivables
Allowance for doubtful accounts
1,281
1,075
(711)
2010
6,998
1,270
3,252
(130)
$
15,934
$
11,390
ii Accounts payable and accrued liabilities
A summary of the components of accounts payable
and accrued liabilities is as follows:
Trade accounts payable
$
18,270 $
2011
Accrued payroll
Accrued interest
Income taxes payable
Other
4,852
416
1,087
140
2010
7,598
2,990
397
2,564
138
$
24,765 $
13,687
iii Warranty liability
A continuity of the warranty liability is as follows:
Balance, beginning of year
$ 20,950 $ 19,496 $
2011
2010
Warranty claims
Warranty accruals
Change in warranty estimates
Impact of foreign exchange
(14,143)
(14,164)
14,034
(2,735)
(71)
17,718
(2,059)
(41)
2009
8,920
(8,039)
14,962
3,835
(182)
Balance, end of year
$ 18,035 $ 20,950 $ 19,496
iv Cost of revenue
Cost of revenue related to product revenue for the year ended March 31,
2011 was $72,448 (2010 ▸ $66,277; 2009 ▸ $70,129) and cost of revenue
related to parts revenue was $18,534 (2010 ▸ $16,702; 2009 ▸ $11,208).
v Deferred revenue
whether an entity is a variable interest entity and modifies the methods
allowed for determining the primary beneficiary of a variable interest
entity. In addition, this new accounting standard requires ongoing
reassessments of whether an enterprise is the primary beneficiary
of a variable interest entity and enhanced disclosures related to an
enterprise’s involvement in a variable interest entity. Under the new
standard, the Company’s accounting treatment of its variable interests
remains unchanged. The Company is performing regular reassessments
of whether it is the primary beneficiary of its variable interest entities.
Improvements to financial reporting by enterprises
involved with variable interest entities
In December 2009, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-
17, Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities, which amends ASC 810, Consolidation. The
amendments provide guidance and clarification of how to determine
when a reporting entity should include the assets, liabilities, non-
controlling interests, and results of activities of a variable interest entity
in its consolidated financial statements. The Company adopted this
ASU effective April 1, 2010. The adoption of this standard did not have
a material effect on the Company’s consolidated financial statements.
Subsequent events
In February 2010, the FASB issued a new standard ASU No. 2010-
09, Subsequent Events: Amendments to Certain Recognition and
Disclosure Requirements, to address implementation issues related to
subsequent events. This update eliminated the requirement for SEC
filers to disclose the date through which it has evaluated subsequent
events, clarified the period through which conduit bond obligors must
evaluate subsequent events and refined the scope of the disclosure
requirements for reissued financial statements. These amendments
are effective upon issuance of the update. The adoption of this
update did not have an effect on the Company’s consolidated financial
position, results of operations, cash flows, or note disclosures.
Revenue recognition
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition –
Milestone Method (Topic 605). This ASU stemmed from Emerging
Issues Tax Force (“EITF”) Issue 08-9, Milestone Method of Revenue
Recognition. The Task Force concluded that the milestone method is a
Deferred revenue that will not be amortized in one year is included
valid application of the proportional performance model when applied to
in other long-term liabilities on the balance sheet for Canadian
research or development arrangements. Accordingly, the ASU states that
GAAP purposes and disclosed in [note 12]. Under U.S. GAAP, this
amount would be presented separately on the balance sheet.
the use of the milestone method is an accounting policy election. The
Company early adopted this ASU effective July 1, 2010 and records service
revenue under this method in its consolidated financial statements.
Westport Innovations Inc. 2011 Annual Report :: 43
Notes to Consolidated Financial Statements
expressed in thousands of United States dollars, except share and per share amounts :: years ended March 31, 2011, 2010, and 2009
25 Subsequent Event
On June 8, 2011, the Company entered into a definitive agreement to
acquire 100% of the outstanding shares of Emer S.p.A. (“Emer”) of Brescia,
Italy, for consideration of approximately €80.0 million ($117.2 million)
through a combination of stock, cash, and assumption of debt. The
Company will pay €27.0 million ($39.6 million) in a combination of cash
and the issuance of common shares on the closing date. Common
shares will be issued on the closing date in a range of 50% to 100% of
this payment amount with the remainder settled in cash. The Company
will also assume approximately €53.0 million ($77.6 million) in existing
net debt within Emer. The closing of the transaction is expected on
or about July 1, 2011 and is subject to a number of closing conditions,
including regulatory approval from the Toronto Stock Exchange, approval
from Emer’s banking syndicate, Emer obtaining the shares of minority
shareholders and receipt of Emer’s 2010 audited financial statements. As
a result, the Company will commence consolidating 100% of the assets
liabilities, revenues, and expenses of Emer on the transaction close date.
24 Reconciliation to United States Generally
Accepted Accounting Standards (continued)
i New accounting pronouncements
Fair value measurements and disclosures
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measures
and Disclosures, to require more robust disclosures about the different
classes of assets and liabilities measured at fair value, the valuation
techniques and inputs used, the activity in level 3 fair value measurements
and transfers between Level 1, 2, and 3. This update is effective for
fiscal years beginning after December 31, 2010. We are assessing the
potential impact that the update may have on our financial statements.
Intangibles – Goodwill and Other
In December 2010, the FASB issued ASU No. 2010-28, Intangibles –
Goodwill and Other, which modifies step 1 of the goodwill impairment
test for reporting units with zero or negative carrying amounts. For
those reporting units, an entity is required to perform step 2 of the
impairment test if it is more likely than not that a goodwill impairment
exists. This updated is effective for fiscal years beginning on or after
December 15, 2010. The Company has determined that the update
will not have any impact on its consolidated financial statements.
Business Combinations
In December 2010, the FASB issued ASU No. 2010-29, Business
Combinations, on the disclosure of supplementary pro forma information
for business combinations. A public entity (acquirer) that presents
comparative financial statements should disclose revenue and earnings of
the combined entity as though the business combination that had occurred
during the current year had occurred as of the beginning of the comparable
prior annual reporting period. This update is effective prospectively for
acquisition dates on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. We are assessing the
potential impact that the update may have on our financial statements.
Multiple-Deliverable Revenue Arrangements
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable
Revenue Arrangements. The new guidance provides a more flexible
alternative to identify and allocate consideration among multiple elements
in a bundled arrangement when vendor-specific objective evidence or third-
party evidence of selling price is not available. The new guidance requires
the use of the relative selling price method and eliminates the residual
method to allocation arrangement consideration. Additional expanded
qualitative and quantitative disclosures are also required. The guidance is
effective prospectively for revenue arrangements entered into or materially
modified in years beginning on or after June 15, 2010. We are assessing
the potential impact that the update may have on our financial statements.
44 :: Westport Innovations Inc. 2011 Annual Report
Shareholder Information
Shareholder Information
Directors and Executive Officers
name
place of residence
position
start date
committee memberships
John A. Beaulieu
Warren J. Baker
Avila Beach, California
M.A. (Jill) Bodkin
Vancouver, BC
Director
Director
Vancouver, Washington
Chairman and Director
1997-09
● ● ●
2002-09
● ●
●
●
2008-07
● ●
● ●
David R. Demers
Dezsö J. Horváth
West Vancouver, British Columbia
Chief Executive Officer and Director
1995-03
●
● ● ●
●
Toronto, Ontario
Director
2001-09
● ●
● ●
William (Bill) E. Larkin
Blaine, Washington
Chief Financial Officer
2010-02
Sarah Liao Sau Tung
Hong Kong, China
Albert Maringer
Canmore, Alberta
Director
Director
Gottfried (Guff) Muench West Vancouver, British Columbia
Director
2008-07
●
●
2008-07
●
● ●
2010-07
●
● ●
Nicholas C. Sonntag
Gibsons, British Columbia
Executive Vice President, Corporate Development,
Westport, and President, Westport Asia
Elaine A. Wong
Vancouver, British Columbia
Executive Vice President, Strategic Development
2006-10
2001-09
Corporate Information
Westport Shareholder Services
Shareholders with questions about their account—including change of
address, lost stock certificates, or receipt of multiple mail-outs and other
related inquiries—should contact our Transfer Agent and Registrar:
ͯ Computershare Investor Services Inc.
510 Burrard Street, 3rd Floor
Vancouver, British Columbia, Canada :: V6C 3B9
tel: 604-661-9400 :: fax: 604-661-9549
Legal Counsel
Bennett Jones LLP :: Calgary, Alberta, Canada
Auditors
KPMG LLP Chartered Accountants :: Vancouver, British Columbia, Canada
Stock Listing
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The information on these websites is not incorporated by reference into
this Annual Report. Financial results, Annual Information Form, news,
services, and other activities can also be found on Westport’s website, on
SEDAR at www.sedar.com, or at the SEC at www.sec.gov. Shareholders
and other interested parties can also sign up to receive news updates:
via email
via RSS
invest@westport.com
westport.com/rss
via Twitter
@WestportWPRT
NASDAQ: WPRT :: Toronto Stock Exchange: WPT
Contact Information / Corporate Offices
Annual Meeting
The Westport Innovations Inc. Annual Meeting of Shareholders will be
held on Thursday, July 14th, 2011 at 2:00 p.m. (Pacific) at
the Pan Pacific Hotel, 999 Canada Place, Vancouver, British Columbia.
Westport on the Internet
Topics featured in this Annual Report can be found on our websites:
Westport Innovations Inc.
westport.com
Westport HD
westport-hd.com
Cummins Westport Inc.
cumminswestport.com
Juniper Engines Inc.
juniperengines.com
101 – 1750 West 75th Avenue
Vancouver, British Columbia, Canada :: V6P 6G2
tel: 604-718-2000 :: fax: 604-718-2001 :: invest@westport.com
Forward Looking Statements
This document contains forward-looking statements about Westport’s business, operations,
technology development, and/or about the environment in which it operates, which are based
on Westport’s estimates, forecasts, and projections. These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to predict, or are beyond
Westport’s control and may cause actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements
expressed in or implied by these forward looking statements. These risks include risks relating
to the timing and demand for our products, future success of our business strategies and
other risk factors described in our most recent Annual Information Form and other filings with
securities regulators. Consequently, readers should not place any undue reliance on such
forward-looking statements. In addition, these forward-looking statements relate to the date
on which they are made. Westport disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events, or otherwise.
Westport Innovations Inc. 2011 Annual Report :: 45
westport.com
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